B-52101, OCTOBER 22, 1945, 25 COMP. GEN. 352

B-52101, OCTOBER 22, 1945, 25 COMP. GEN. 352

SALES - SURPLUS GOVERNMENT VESSELS A BIDDER WHO FAILS TO TAKE ADVANTAGE OF AN OPPORTUNITY TO INSPECT SURPLUS GOVERNMENT PROPERTY OFFERED FOR SALE ON AN "AS IS, WHERE IS" BASIS WITHOUT WARRANTY OR GUARANTY OF ANY KIND CANNOT SUBSEQUENTLY RECOVER ON THE GROUNDS THAT THE PROPERTY WAS OF AN INFERIOR QUALITY. THE TERM "VESSEL" AS USED IN THE ACT OF MAY 18, 1944, RELATING TO THE SALE OF CERTAIN SURPLUS GOVERNMENT VESSELS, OR IN INVITATIONS FOR BIDS ISSUED PURSUANT THERETO, COMPREHENDS ALL STRUCTURES PREVIOUSLY ACQUIRED AS VESSELS, REGARDLESS OF THEIR PRESENT CONDITION, CHARACTERISTICS OR SEAWORTHINESS, AND, THEREFORE, THERE IS NO DEGREE OF DETERIORATION OR INJURY TO A VESSEL WHICH WOULD PRECLUDE ITS SALE AS A "VESSEL" SO AS TO PREVENT FORFEITURE OF THE BIDDER'S GUARANTEE DEPOSIT UPON DEFAULT ON GROUNDS THAT THE OBJECT OFFERED FOR SALE WAS A HULK OR SCRAP RATHER THAN A VESSEL. UNDER A CONTRACT FOR THE SALE OF SURPLUS VESSELS ARISING IN CONNECTION WITH AN INVITATION FOR BIDS REQUIRING THE AMOUNT OF THE BID GUARANTY TO BE PAID AS LIQUIDATED DAMAGES IN THE EVENT OF DEFAULT, NEITHER THE MARKET VALUE OF THE VESSEL NOR THE ACTUAL DAMAGE SUFFERED BY THE GOVERNMENT UPON THE BIDDER'S DEFAULT AFFECTS THE VESTED RIGHT ACQUIRED BY THE GOVERNMENT IN THE AMOUNT OF THE BID GUARANTY UPON SUCH DEFAULT, AND, THEREFORE, THE WHOLE AMOUNT OF SUCH DEPOSIT MUST BE RETAINED BY THE GOVERNMENT AS LIQUIDATED DAMAGES.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR, WAR SHIPPING ADMINISTRATION, OCTOBER 22, 1945:

THERE HAS BEEN CONSIDERED YOUR LETTER OF AUGUST 29, 1945, REQUESTING DECISION ON CERTAIN QUESTIONS ARISING IN CONNECTION WITH THE DISPOSITION OF SURPLUS VESSELS UNDER THE PROVISIONS OF THE PUBLIC LAW 305, 58 STAT. 223, 224, APPROVED MAY 18, 1944. YOU STATE THAT IN MANY CASES IT HAS BECOME NECESSARY TO DISPOSE OF SUCH VESSELS THROUGH PUBLIC BID, AS PROVIDED BY THE SAID ACT; THAT DESPITE THE FACT THAT SUCH SALES ARE MADE "AS IS, WHERE IS" WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, BIDDERS HAVE SUBMITTED BIDS AND CASH GUARANTY DEPOSITS OF 25 PERCENT OF SUCH BIDS WITHOUT FIRST INSPECTING THE VESSELS BID UPON; AND THAT IN SEVERAL CASES, THE HIGHEST BIDDERS, AFTER ACCEPTANCE OF THEIR BIDS, HAVE REFUSED TO ACCEPT THE VESSELS UPON INSPECTING THEM AND HAVE OBJECTED TO THE FORFEITURE OF THEIR GUARANTY DEPOSITS ON VARIOUS GROUNDS, INCLUDING MISTAKE, ALLEGATIONS THAT THE OBJECTS OF THE SALES WERE HULKS OR SCRAP RATHER THAN VESSELS, ETC. THE SPECIFIC QUESTIONS RAISED ARE:

A. AS THE INVITATIONS FOR BIDS OFFER FOR SALE SPECIFIED "VESSELS," IS THERE, IN YOUR OPINION, ANY DEGREE OF DETERIORATION OR INJURY TO A VESSEL WHICH SHOULD PREVENT IT FROM BEING SOLD AS A ,VESSEL" UNDER THIS FORM OF REPRESENTATION SO THAT, REGARDLESS OF SUCH CONDITION, THE GUARANTEE DEPOSIT MAY NOT BE FORFEITED IN THE EVENT OF FAILURE OF THE SUCCESSFUL BIDDER TO TAKE DELIVERY THEREOF AND PAY THE BALANCE OF THE BID PRICE?

B. IF THERE IS SUCH A DIVIDING LINE BETWEEN VESSELS AS SUCH AND "VESSELS" WHICH SHOULD BE SOLD AS HULKS OR WRECKS OR AS SCRAP MATERIAL, BY WHAT STANDARDS MAY A PROPER SEGREGATION FOR THIS PURPOSE BE MADE?

C. IN THE EVENT OF FORFEITURE OF THE GUARANTEE DEPOSIT MADE BY A BIDDER THROUGH LACK OF UNDERSTANDING AS TO THE REAL CONDITION OF THE OBJECT OF THE SALE, MAY THE WHOLE AMOUNT OF SUCH DEPOSIT BE FORFEITED REGARDLESS OF THE AMOUNT OF ANY ACTUAL DAMAGES TO THE ADMINISTRATION RESULTING FROM FAILURE OF THE SUCCESSFUL BIDDER TO COMPLETE THE TRANSACTION, FOR

EXAMPLE:

(A) IF THE SUCCESSFUL BID IS $20,000 AND THE CORRESPONDING DEPOSIT $5,000; AND IF THE NEXT HIGHEST BID IS $5,000; AND IF THE VESSEL IS RE OFFERED FOR SALE AND, ON THE SECOND OFFER, THE BIDS DO NOT EXCEED $5,000, IS THE ADMINISTRATION JUSTIFIED IN CONSIDERING THAT ITS LIQUIDATED DAMAGES ARE THE FULL AMOUNT OF THE FORFEITED DEPOSIT ON THE THEORY THAT THE FIRST BID OF $20,000 REPRESENTS MARKET VALUE OF THE VESSEL, OR SHOULD THE FORFEIT BE COMPUTED ON THE THEORY THAT THE ACTUAL MARKET VALUE IS REPRESENTED BY THE TWO HIGHEST BIDS OTHER THAN THAT ALLEGEDLY MADE UNDER MISTAKE, ETC?

(B) ASSUMING THAT THE FIRST BID IS $20,000, THE GUARANTEE DEPOSIT IS $5,000 AND THE SECOND HIGHEST BID ON THE FIRST OFFER IS $5,000 AND THE HIGHEST BID ON THE SECOND OFFER IS $22,000, ON WHAT BASIS SHOULD THE FORFEIT BE COMPUTED?

(C) IF, IN YOUR OPINION, THE AMOUNT OF FORFEIT SHOULD BE LESS THAN THE FULL 25 PERCENT GUARANTEE DEPOSIT, WHAT ELEMENTS OF ESTIMATED "LIQUIDATED DAMAGES" SHOULD BE TAKEN INTO CONSIDERATION IN COMPUTING THE AMOUNT TO BE FORFEITED; SHOULD ESTIMATED EXPENSES IN CONNECTION WITH THE SECOND INVITATION, COST OF MAINTENANCE AND PROTECTION OF THE VESSEL AND OTHER SIMILAR ITEMS BE TAKEN INTO CONSIDERATION IN MAKING SUCH AN ESTIMATE?

D. IF IT IS YOUR DETERMINATION THAT THE FACT OF DESIGNATING THE OBJECT OF THE SALE AS A ,VESSEL" PRECLUDES THE PROPRIETY OF INCLUDING THOSE WHICH HAVE BEEN OR WHICH MAY PROPERLY BE CLASSIFED AS HULKS OR WRECKS, AS SCRAP MATERIAL OR VESSELS NOT "CAPABLE OF TRANSPORTATION ON THE WATER," IS THE ADMINISTRATION JUSTIFIED IN RETURNING ALL OR ANY PORTION OF THE GUARANTEE DEPOSIT?

IN PARAGRAPH 1 OF THE INVITATION FOR BIDS, IT IS PROVIDED THAT EACH VESSEL MAY BE INSPECTED AT THE LOCATION INDICATED IN THE SCHEDULE ATTACHED THERETO, AND THAT THE DESCRIPTION OF THE VESSEL GIVEN IN THE SAID SCHEDULE, AS WELL AS "OTHER INFORMATION FURNISHED HEREIN, OR OTHERWISE," IS SOLELY FOR THE GENERAL INFORMATION OF BIDDERS WITH NO WARRANTY MADE AS TO THE ACCURACY THEREOF. IN PARAGRAPH 7 (A), IT IS PROVIDED THAT EACH VESSEL IS OFFERED FOR SALE "AS IS, WHERE IS" AT DATE OF DELIVERY WITHOUT WARRANTY, GUARANTY, OR REPRESENTATION AS TO THE SEAWORTHINESS, CONDITION, DESCRIPTION, CAPACITY, TONNAGE OR OTHERWISE. THERE IS ADDED LANGUAGE IN PARAGRAPH 7 (A) OF SOME OF THE FORMS OF INVITATION FOR BIDS, THE EFFECT OF WHICH IS TO WARN BIDDERS TO INSPECT THE VESSELS BEFORE SUBMITTING BIDS THEREON; BUT SUCH LANGUAGE WOULD NOT SEEM TO HAVE A MATERIAL BEARING ON THE QUESTIONS HERE IN ISSUE, SINCE OBVIOUSLY IT WAS NOT INTENDED TO ALTER THE FUNDAMENTAL NATURE OF THE TRANSACTION OR THE RIGHTS OF THE PARTIES INCIDENT THERETO. SEE 17 COMP. GEN. 662.

INSOFAR AS CONCERNS THE CONDITION OF SURPLUS GOODS OFFERED FOR SALE BY THE GOVERNMENT ON AN "AS IS, WHERE IS" BASIS WITHOUT WARRANTY OR GUARANTY OF ANY KIND, THE LAW IS CLEAR THAT A BIDDER WHO FAILS TO TAKE ADVANTAGE OF AN OPPORTUNITY TO INSPECT CANNOT SUBSEQUENTLY RECOVER ON THE GROUNDS THAT THE GOODS ARE OF AN INFERIOR QUALITY. SEE M. SAMUEL AND SONS V. UNITED STATES, 61 C.1CLS. 73; TRIAD CORPORATION V. UNITED STATES, 63 C.1CLS. 151; S. BRODY V. UNITED STATES, 64 C.1CLS. 538; SILBERSTEIN AND SON V. UNITED STATES, 69 C.1CLS. 412; SACHS MERCANTILE CO. V. UNITED STATES, 78 C.1CLS. 801; LIPSHITZ AND COHEN V. UNITED STATES, 269 U.S. 90; MOTTRAM V. UNITED STATES, 271 U.S. 15; MAGUIRE AND CO. V. UNITED STATES, 273 U.S. 67. THUS, IN TRIAD CORPORATION V. UNITED STATES, SUPRA, THE COURT SAID:

* * * THE PLAINTIFF WAS THUS NOTIFIED BEFORE THE SALE THAT IF IT BID AND PURCHASED THE LOT OF MATERIAL IT COULD NOT CLAIM ANY ALLOWANCE ON ACCOUNT OF DEFICIENCY IN QUALITY, CHARACTER, OR KIND OF MATERIAL SOLD AND DELIVERED.

THE PLAINTIFF DID NOT TAKE ADVANTAGE OF ITS RIGHT TO INSPECT, BUT BOUGHT THE LOT WITHOUT INSPECTING IT.

UNDER THE TERMS OF THE CATALOGUE IT IS DIFFICULT TO PERCEIVE HOW THE GOVERNMENT COULD HAVE GIVEN PURCHASERS MORE SPECIFIC WARNING THAN IT DID, THAT THEY BOUGHT AT THEIR RISK WHAT MATERIAL IT HAD AND WAS OFFERING FOR SALE; THAT IF A PURCHASER WISHED TO PROTECT HIMSELF HE COULD DO SO BY INSPECTION, FULL OPPORTUNITIES FOR WHICH WERE OFFERED, AND THAT IF HE FAILED TO INSPECT AND RECEIVED SOMETHING OTHER THAN WHAT HE THOUGHT HE WAS BUYING HE COULD HAVE NO REDRESS AND COULD NOT CLAIM ALLOWANCES BY REASON THEREOF. MORE THAN THAT, HE WAS DISTINCTLY TOLD THAT FAILURE TO INSPECT WOULD NOT BE CONSIDERED AS A GROUND FOR ADJUSTMENT. IF PLAINTIFF NEGLECTED TO EMBRACE THE OPPORTUNITY OFFERED IT TO INSPECT AND PURCHASED THE PROPERTY WITHOUT DOING SO, WITH NOTICE THAT IT BOUGHT AT ITS OWN RISK, IT CREATED BY ITS OWN NEGLIGENCE THE SITUATION FROM WHICH IT NOW SEEKS RELIEF.

HOWEVER, THE SUBSTANCE OF THE CONTENTIONS FORMING THE BASIS OF THE FIRST QUESTION POSED IN YOUR LETTER WOULD SEEM TO BE, NOT THAT THE VESSELS SOLD TURNED OUT TO BE IN POORER CONDITION THAN WAS EXPECTED, BUT RATHER, THAT THE THING SOLD WAS NOT IN FACT A VESSEL.

IN DECISION DATED APRIL 24, 1937 (A-85266), IT WAS STATED:

WITH RESPECT TO YOUR STATEMENT THAT THE CUTTER COULD NO LONGER BE TERMED A BOAT AND SHOULD HAVE BEEN CLASSED AS JUNK LUMBER IN OFFERING IT FOR SALE, YOUR PARTICULAR ATTENTION IS INVITED TO PARAGRAPH 7 OF THE AFORESAID TERMS AND CONDITIONS, WHEREIN IT IS SPECIFICALLY STATED THAT NO WARRANTY OR GUARANTY WAS GIVEN BY THE NAVY DEPARTMENT AS TO DESCRIPTION OF THE MATERIAL OR THAT IT WAS IN CONDITION TO BE USED FOR THE PURPOSE FOR WHICH IT WAS ORIGINALLY INTENDED, OR BE INTENDED OR DESIRED TO BE USED BY THE PURCHASER. THE NAVY DEPARTMENT HAD UNMISTAKABLY DISCLAIMED ANY INTENTION OR REPRESENTATION AS TO THE CHARACTER OF THE MATERIAL AND, ALSO, HAD SERVED NOTICE UNDER PARAGRAPH 6, SUPRA, THAT FAILURE TO INSPECT THE MATERIAL WOULD NOT CONSTITUTE GROUNDS FOR ADJUSTMENT OR RESCISSION OF THE CONTRACT. ALSO, SEE B 48071, MAY 24, 1945.

THERE IS NO INDICATION EITHER IN THE PROVISIONS OF PUBLIC LAW 305 OR IN ITS LEGISLATIVE HISTORY OF AN INTENT ON THE PART OF THE CONGRESS TO DISTINGUISH BETWEEN VESSELS ON THE ONE HAND AND SCRAP, HULKS, WRECKS, ETC., ON THE OTHER. MOREOVER, IN THE INVITATION FOR BIDS IT IS EXPRESSLY PROVIDED THAT NO REPRESENTATION OR WARRANTY IS MADE AS TO THE SEAWORTHINESS--- AMONG OTHER THINGS--- OF THE VESSEL. IN OTHER WORDS, IT WOULD SEEM THAT THE TERM "VESSEL," AS IT APPEARS BOTH IN PUBLIC LAW 305 AND IN THE INVITATION FOR BIDS ISSUED IN PURSUANCE OF SUCH LAW, IS USED IN ITS BROAD GENERIC SENSE ONLY AND THAT IT COMPREHENDS ALL STRUCTURES PREVIOUSLY ACQUIRED AS VESSELS, REGARDLESS OF THEIR PRESENT CONDITION, CHARACTERISTICS, OR SEAWORTHINESS. ACCORDINGLY, QUESTION A IS ANSWERED IN THE NEGATIVE--- MAKING IT UNNECESSARY TO ANSWER QUESTIONS B OR D.

WITH RESPECT TO QUESTION C, PARAGRAPH 4 OF THE INVITATION FOR BIDS PROVIDES:

NO BID WILL BE CONSIDERED UNLESS IT IS ACCOMPANIED BY A DEPOSIT, SATISFACTORY TO THE ADMINISTRATOR, IN A SUM EQUAL TO AT LEAST TWENTY FIVE PERCENT OF THE AMOUNT OF SUCH BID, TO INSURE COMPLIANCE WITH THE TERMS OF THE BID. BIDDERS WHO SUBMIT BIDS ON MORE THAN ONE VESSEL MUST SUBMIT SEPARATE DEPOSITS ON EACH VESSEL FOR WHICH A BID IS MADE, IN THE AMOUNT REQUIRED. IF THE BUYER FAILS TO MAKE FULL PAYMENT OF THE PURCHASE PRICE, AND TAKE DELIVERY OF THE VESSEL, ALL WITHIN THE TIME SPECIFIED HEREIN, THE FULL AMOUNT OF THIS BID GUARANTY DEPOSIT SHALL BE PAID TO THE ADMINISTRATOR AS LIQUIDATED DAMAGES AND NOT AS A PENALTY. A BIDDER MAY, AT ITS OPTION, FURNISH AS SUCH GUARANTY, A CERTIFIED CHECK, A BANK DRAFT OR POSTAL MONEY ORDER PAYABLE TO THE ORDER OF THE WAR SHIPPING ADMINISTRATION. SUCH DEPOSITS MAY BE HELD BY THE ADMINISTRATOR,UNCOLLECTED, AT BIDDER'S RISK. THE DEPOSITS OF UNSUCCESSFUL BIDDERS WILL BE RETURNED AS SOON AS PRACTICABLE.

IN LAMPORT MFG. SUPPLY CO. V. UNITED STATES, 65 C.1CLS. 579, 609, THE COURT SAID:

TO SECURE AS SPEEDY A DISPOSAL OF THE MATERIAL AS POSSIBLE IT WAS WISELY PROVIDED IN EACH OF THESE SALES THAT THE PURCHASER, UPON ACCEPTANCE OF THE BID, SHOULD DEPOSIT 10 PERCENT OF THE AMOUNT OF HIS BID AS LIQUIDATED DAMAGES AND TO GUARANTEE PERFORMANCE. BY LIQUIDATED DAMAGES IS MEANT A CERTAIN SUM AGREED UPON BY THE PARTIES IN ADVANCE WHICH SHALL BE PAID OR RETAINED IN LIEU AND SATISFACTION OF ANY CLAIM FOR DAMAGES WHICH MAY ARISE OUT OF A BREACH OF THE CONTRACT BY THE PURCHASER AND A FAILURE TO TAKE AND PAY FOR ALL OR ANY PART OF THE MATERIAL. THIS PROVISION FOR LIQUIDATED DAMAGES WOULD ENABLE THE GOVERNMENT, ON THE FAILURE OF THE PURCHASER TO COMPLY WITH HIS BID AND TO TAKE AND PAY FOR THE GOODS, TO APPROPRIATE THE 10 PERCENT AS LIQUIDATED DAMAGES FOR BREACH AND PROMPTLY SELL THE MATERIAL, INSTEAD OF RETAINING IT AND WAITING FOR THE POSSIBLE FULFILLMENT OF THE CONTRACT OR A SUIT FOR DAMAGES.

WE HOLD AND THE COURT HAS FOUND THAT THE PAYMENT OF 10 PERCENT WAS IN THE NATURE OF LIQUIDATED DAMAGES.

AND IN JOHN T. HICKEY V. UNITED STATES, 65 C.1CLS. 729, 736, 737, THERE WAS INVOLVED A SALE OF SURPLUS GOVERNMENT PROPERTY, ONE OF THE CONDITIONS OF THE SALE BEING:

TWENTY PERCENT OF THE BID MUST BE PAID IN CASH OR CERTIFIED CHECK AT THE TIME AND PLACE OF ALE; BALANCE WITHIN TEN DAYS FROM DATE OF SALE IN CASH, CERTIFIED CHECK, OR LETTER OF CREDIT, OTHERWISE THE GOVERNMENT RESERVES THE RIGHT TO FORFEIT THE DEPOSIT AS LIQUIDATED DAMAGES, AND THE BIDDER SHALL LOSE ALL RIGHT OR INTEREST IN THE PROPERTY. * * * CERTAIN PROPERTY WAS AWARDED TO THE PLAINTIFF AT THE SALE AND HE DEPOSITED APPROXIMATELY 20 PERCENT OF HIS BID BUT FAILED TO PAY THE BALANCE. THE GOVERNMENT HAVING DECLARED THE DEPOSIT FORFEITED AS LIQUIDATED DAMAGES, THE PLAINTIFF SUED FOR ITS RECOVERY. THE COURT SAID:

IT IS CONTENDED THAT THE DEFENDANT HAD NO RIGHT TO APPROPRIATE, OR, AS THE PLAINTIFF PUTS IT, TO FORFEIT THE $2,500 AS LIQUIDATED DAMAGES; THAT IT WAS ENFORCING IT AS A PENALTY, WHICH THE COURTS ARE NOT INCLINED TO FAVOR. THE PARTIES HAVE A RIGHT TO CONTRACT UPON THE BASIS OF THE SUM DEPOSITED BEING LIQUIDATED DAMAGES, AND IF IT APPEARS TO HAVE BEEN THE INTENTION OF THE PARTIES THAT IT SHOULD BE SO TREATED, THAT INTENTION WILL BE CARRIED OUT.

IT WOULD BE DIFFICULT IN A CONTRACT TO DECLARE THE INTENTION OF THE PARTIES MORE CLEARLY THAN IN THIS CONTRACT. IT PROVIDES THAT IF THE BALANCE OF THE PURCHASE MONEY IS NOT PAID WITHIN THE TIME SPECIFIED, THE GOVERNMENT SHALL HAVE "THE RIGHT TO FORFEIT THE DEPOSIT AS LIQUIDATED AGES," AND SHOWING THAT THIS MEANT THE RESCISSION AND TERMINATION OF THE CONTRACT AND PLAINTIFF'S INTEREST THEREIN, IT PROVIDES THAT THE "BIDDER SHALL LOSE ALL RIGHT OR INTEREST IN THE PROPERTY.'

WE HOLD THAT UNDER THIS CONTRACT THE DEPOSIT OF $2,500 WAS MADE WITH THE INTENTION THAT IT WAS TO BE TREATED AS LIQUIDATED DAMAGES UPON THE FAILURE OF THE PLAINTIFF TO COMPLY WITH THE TERMS OF THE CONTRACT. ALSO, SEE VILLAGE OF MORGAN PARK V. GAHAN ET AL., 26 N.E. 1085.

HERE, ALSO, THE PROVISIONS OF PARAGRAPH 4 ARE CLEAR AND UNAMBIGUOUS WITH RESPECT TO THE INTENT OF THE PARTIES TO TREAT THE AMOUNT OF THE BID GUARANTY AS LIQUIDATED DAMAGES IN THE EVENT THE SUCCESSFUL BIDDER FAILS TO COMPLY WITH THE TERMS OF HIS BID. NEITHER THE MARKET VALUE OF THE VESSEL NOR THE ACTUAL DAMAGE SUFFERED BY THE GOVERNMENT BY REASON OF THE BIDDER'S BREACH OF CONTRACT HAS ANY BEARING WHATEVER ON THE MATTER. THE VESTED RIGHT IN THE AMOUNT OF THE BID GUARANTY WHICH THE ADMINISTRATOR ACQUIRES UPON FAILURE OF THE SUCCESSFUL BIDDER TO MAKE FULL PAYMENT OF THE PURCHASE PRICE AND TAKE DELIVERY OF THE VESSEL WITHIN THE TIME SPECIFIED, MAY NOT BE WAIVED IN WHOLE OR IN PART. ACCORDINGLY, YOU ARE ADVISED THAT NOT ONLY MAY THE WHOLE AMOUNT OF SUCH DEPOSIT BE FORFEITED IN THE CIRCUMSTANCES DESCRIBED, BUT THAT THE WHOLE AMOUNT OF SUCH DEPOSIT MUST BE FORFEITED OR, RATHER, RETAINED BY THE GOVERNMENT AS LIQUIDATED DAMAGES.