B-86302, JULY 13, 1949, 29 COMP. GEN. 16

B-86302, JULY 13, 1949, 29 COMP. GEN. 16

CONTRACTS - DAMAGES - LIQUIDATED - DEMURRAGE CHARGES WHERE A SPECIFIED DAILY RATE OF DEMURRAGE FOR DELAY--- OVER AND ABOVE THE ALLOWABLE FREE PERIOD--- IN UNLOADING SURPLUS GOVERNMENT PROPERTY FROM SHIPBOARD WAS CONSCIOUSLY AND DELIBERATELY MADE A PART OF A CONTRACT FOR THE SALE OF SURPLUS PROPERTY TO SERVE AS THE MEASURE OF LIQUIDATED DAMAGES WHICH MIGHT RESULT FROM A DELAY IN DISCHARGING THE CARGO, DEMURRAGE CHARGES ACCRUING TO THE GOVERNMENT ON ACCOUNT OF THE VENDEE'S UNDUE DELAY IN UNLOADING THE CARGO MAY NOT BE REDUCED EITHER ON THE BASIS THAT OTHER CONTRACTS WITH THE SAME VENDEE PROVIDED FOR A LOWER RATE OF DEMURRAGE, OR THAT SUCH LIQUIDATED DAMAGE PROVISION CONSTITUTED A PENALTY.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF STATE, JULY 13, 1949:

REFERENCE IS MADE TO LETTER OF MAY 12, 1949, FROM THE ASSISTANT SECRETARY OF STATE, REQUESTING A DECISION AS TO WHETHER, UNDER THE CIRCUMSTANCES REPORTED THEREIN, A REDUCTION IS AUTHORIZED IN THE DEMURRAGE CHARGES WHICH ACCRUED TO THE GOVERNMENT UNDER SALES CONTRACT NO. W-ANL (PA-I/-29, DATED DECEMBER 18, 1945, WITH THE NETHERLANDS INDIES GOVERNMENT.

UNDER THE TERMS OF THE CONTRACT THE NETHERLANDS INDIES GOVERNMENT AGREED TO PURCHASE CERTAIN GOVERNMENT PROPERTY ON BOARD THE SHIPS MELLO FRANCO AND WALTER COULTON LOCATED AT THE PORTS OF SUBIC AND LEYTE, PHILIPPINE ISLANDS, RESPECTIVELY, FOR A TOTAL CONSIDERATION OF $2,500,0 ARTICLE 4 OF THE CONTRACT PROVIDED, IN PERTINENT PART, AS FOLLOWS

ARTICLE FOUR. SALE OF PROPERTY "1WHERE IS"--- DELIVERY. THE PROPERTY IS SOLD "WHERE IS" ON SHIPBOARD, AT THE INDICATED LOCATION OF EACH SHIP, HOWEVER, THE SHIPS WILL BE MOVED BY THE SELLER TO BATAVIA, JAVA, NETHERLANDS EAST INDIES. THE REMOVAL OF THE CARGO FROM SHIPBOARD SHALL BE THE RESPONSIBILITY OF THE BUYER. * * * UNLESS THE PURCHASER REMOVES OR CAUSES THE PROPERTY TO BE REMOVED FROM A SHIP WITHIN FIFTEEN (15) DAYS AFTER THE DATE OF ARRIVAL OF SUCH SHIP IN THE WATERS OF THE DESIGNATED PORT OF DISCHARGE THE PURCHASER SHALL PAY TO THE UNITED STATES, FIVE THOUSAND ($5,000.00) AS LIQUIDATED DAMAGES FOR EACH DAY OR FRACTION OF A DAY IN EXCESS OF SAID 15 DAYS UNTIL THE CARGO IS FULLY DISCHARGED * * *.

IT APPEARS FROM THE AFORESAID LETTER THAT THE UNITED STATES HAS ASSESSED THE NETHERLANDS INDIES GOVERNMENT $5,000 PER DAY DEMURRAGE CHARGES FOR 21 DAYS' DELAY OVER AND ABOVE THE 15-DAY FREE PERIOD ALLOWED IN ARTICLE 4 OF THE CONTRACT IN UNLOADING CARGO FROM THE SHIPS MELLO FRANCO AND WALTER COULTON; AND THAT, WHILE THE NETHERLANDS INDIES GOVERNMENT ADMITS THE DELAY IT CONTENDS THAT THE $5,000 LIQUIDATED DEMURRAGE CHARGE IS EXCESSIVE SINCE THE USUAL DEMURRAGE CHARGE FOR THE SAME TYPE OF VESSELS IS ONLY $1,900 PER DAY. IT IS STATED BY THE ASSISTANT SECRETARY THAT THE OFFICE OF THE FOREIGN LIQUIDATION COMMISSIONER HAS ON RECORD THREE OTHER CONTRACTS FOR SALE OF SURPLUS GOVERNMENT PROPERTY BY THE UNITED STATES TO THE NETHERLANDS INDIES GOVERNMENT WHICH ALLOW A 20-DAY FREE PERIOD FOR UNLOADING AND PROVIDE FOR A DEMURRAGE CHARGE OF $1,900 FOR EACH DAY OF DELAY BEYOND THE 20 DAY FREE PERIOD; THAT THE CHAIRMAN OF THE UNITED STATES MARITIME COMMISSION BY RATE ORDER NO. 391, APPROVED SEPTEMBER 5, 1945, ESTABLISHED A DEMURRAGE RATE OF $1,700 FOR VESSELS OF THE SIZE OF THE MELLO FRANCO AND THE WALTER COULTON; AND THAT THE FIELD OFFICES OF THE OFLC REPORTED THAT THERE WAS NO INFORMATION AVAILABLE IN THEIR FILES TO JUSTIFY CHARGING THE $5,000 DEMURRAGE RATE NOR IS THERE ANYONE WITH KNOWLEDGE OF THE TRANSACTION OF SPECIAL CIRCUMSTANCES JUSTIFYING THE HIGHER RATE. IT IS FURTHER STATED THAT THE $5,000 DEMURRAGE CHARGE WAS SO EXCESSIVE AS TO CONSTITUTE A PENALTY RATHER THAN LIQUIDATED DAMAGES.

IN VIEW OF THE FACTS PRESENTED A DECISION IS REQUESTED AS TO WHETHER DEMURRAGE CHARGES OF $1,900 PER DAY MAY BE ACCEPTED AS REPRESENTING THE FAIR VALUE OF DEMURRAGE INSTEAD OF THE $5,000 PER DAY STIPULATED IN THE CONTRACT.

THE GENERAL RULE IS THAT WHERE THE RATE OF DEMURRAGE IS AGREED UPON IN A CONTRACT, THE AGREEMENT WILL BE GIVEN EFFECT AS FOR LIQUIDATED DAMAGES, UNLESS IT CLEARLY APPEARS THAT THE REAL INTENT WAS TO PROVIDE FOR A PENALTY. BAILEY V. MANUFACTURERS' LUMBER CO., 224 F. 806. IN DETERMINING WHETHER A PROVISION IS FOR LIQUIDATED DAMAGES, OR FOR A PENALTY, THE CONTRACT IS TO BE CONSIDERED IN THE LIGHT OF THE CIRCUMSTANCES SURROUNDING THE PARTIES AT THE TIME OF ITS EXECUTION. IF, AT THAT TIME, THE PARTIES ARE HONESTLY TRYING TO ARRANGE IN ADVANCE A FAIR BASIS FOR ACTUAL DAMAGES, IT MAKES NO DIFFERENCE WHETHER IT TURNS OUT TOO MUCH OR TOO LITTLE.

WHILE, IN THE PRESENT CASE, IT IS STATED IN THE ASSISTANT SECRETARY'S LETTER THAT THERE IS NO INFORMATION AVAILABLE AS TO ANY SPECIAL CIRCUMSTANCES JUSTIFYING THE RATE STIPULATED IN THE CONTRACT, THERE ALSO IS NOTHING IN THE RECORD TO INDICATE THAT THE RATE WAS NOT INSERTED IN THE CONTRACT IN GOOD FAITH; NOR IS THERE ANY EVIDENCE BEARING UPON THE EXTENT OR NATURE OF THE DAMAGE WHICH MIGHT HAVE BEEN ANTICIPATED BY THE CONTRACTING OFFICER AT THE TIME THE CONTRACT WAS ENTERED INTO. HENCE, IN THE ABSENCE OF EVIDENCE TO THE CONTRARY IT MUST BE PRESUMED THAT THE RATE STIPULATED WAS CONSCIOUSLY AND DELIBERATELY MADE A PART OF THE CONTRACT TO SERVE AS THE MEASURE OF DAMAGES WHICH MIGHT RESULT FROM A DELAY IN DISCHARGING THE CARGO FROM THE VESSELS. ALSO, THE FACT THAT OTHER CONTRACTS BETWEEN THE GOVERNMENT AND THE CONTRACTOR PROVIDE A LOWER RATE AFFORDS NO LEGAL BASIS FOR REDUCING THE RATE STIPULATED IN THE CONTRACT HERE INVOLVED. IN VIEW OF THE FOREGOING THIS OFFICE WOULD NOT BE JUSTIFIED IN CONSTRUING THE LIQUIDATED DAMAGE PROVISION AS A PENALTY. SEE, GENERALLY, B-82333, JANUARY 25, 1949, 28 COMP. GEN. 435, AND B-80576, FEBRUARY 17, 1949.

ACCORDINGLY, ON THE BASIS OF THE PRESENT RECORD THE LIQUIDATED DAMAGE PROVISION IS FOR ENFORCEMENT PURSUANT TO ITS TERMS AND NO LEGAL BASIS EXISTS FOR REDUCING THE DEMURRAGE CHARGES WHICH ACCRUED TO THE GOVERNMENT THEREUNDER.