LIMITATION OF DAMAGES(Sanitized)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00709R000400070095-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 9, 2016
• Document Release Date: June 6, 2001
• Sequence Number: 95
• Publication Date: October 18, 1948
• Content Type: MEMO

Approved For Rese 2001/09/03: CIA-RDP84-00709R0004
A6. a.
cc Memorandum ? UNITED STATES GOVERNMENT
OGC Has Reviewed
? Piles DATE: 18 October 1948
Limitation of Damages
1. This contract provides for the installation, and main-
tenance and oneravion of a burglar-alarm system. This contract
contains a clause limiting the liability of the contractor to the
Government for each breach. The liquidated damages are nominal.
(850.00) aW.3 are proposed on the basis that it would be "impractical
and extremely difficult to fix the actual daragos". In this regard,
it is assumed that the contents of the vault protected will consist
of almost, if not, entirely classified papers which are net readily
susceatible to monetary valuation.
2. The 1t.w appears to be well settled that the parties to a
contract may agree on liquidated damages for any breach of the,
contract when the material or services to be provided under the con-
tract cannot be readily obtained on the open market, and damages
would be difficult to determine. The Supreme Court has stated
(S:zn ?rintinr and Publishing Ase.ciatioA v, Moore, 183 U.S. 642)
tent:
be proven; it is sufficient to plead the breach of contract.
3. On the other hand, if the stipulation for liquidate dame e
is, on the face of the contract, disproportionate to possible tual.
&xma;es, then the sum will most probably ba construed as a pe ty
and enforced only to ttie extent of actual damages sustained. n
passing, it is noted that proper liquidated daxuagee do not to
to enforce the contract."
"The decisions of this court on the doctrine of liquidated
damages and penalty lend no support to the contention that
parties may not bona fide, in a case where the damages are of
an uncertain nature, estimate and agree upon the measurebf
damages which may be sustained. from the breach of an agrement,
On the c^.ntrary, this court has consistently maintained the.
principle that the intention of the parties is to be arrived
at by the proper construction of the agreement made betwein
them, and that whether a particular stipulation to pay a sum
of money is to be treated as a penalty, or as an agreed cer-
tainment of damages; is to be determined. b,.r the contract,` fairly
construed, it being the duty of the court always, where the
damages are uncertain and have bEen liquidated by an agr went,
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 Approved FoTRelease 2001/09/03: CIA-RDP84-00709RO 400070095-8
4. In reviewing the statutes and opinions, there does not
av en.r to he any restriction of the Government's right tc agree
to liquidate da^:n.f-es. When 'Time of Delivery' is of the essence
or services or :arterial cannot be readily obtained in the open
market, an aanronriate liluidated damages clause can be properly
included in the contract. Generally, liquidated damages should
not be permitted to encceei the contract price, although this usually
applies to situations where supplies or commodities can be readily
obtained, and, in which liquidated damages should not have been
stinalnted at all. The converse is illustrated in the situation
on which the Co:-ptroller commented in 16 Comp. Gen. 344. In that
case, diuna es were stipulated for delays in delivery of two items -
of nnterial not readily obtalnable in the open market. Damages
amounted to $800.00 for $105.00 worth of supplies, and the Comptroller
stated thr,t althou/-.h the clause was appropriate, there was no
annarent relationship between the agreed sum and the potential injury.
rn Per the absence of a shooing of actual damage resulting from the
delay in delivery, the provision was treated in the nature of a
penalty and not recognized. It. should be noted that a contributing
factor to this conclusion was the fact that the stipulated damages
aurlied equally to two items and failed to distinguish a suitable
measure of dansees.rr+~,--irr.e,7i -c TQ. fl y*'l
The opiniDna of the Comptroller have been directed at
ccntracte in which payment of stipulated damages have worked a hard-
ship on the Contractor rather than the Government. The clause in the
contract under concid.eration is governed by the general rules out-
lined above, but it also raises the question of whether there is any
li nitation on the contracting officer's authority to limit tL tGovern-
me.-it 1 e -potential right to claim damages. Since the services to be pro-
vided cannot be readily (indeed, cannot be satisfactorily) obtained
from any other contractor, a liquidated damages clause is appropri-
ate. Since it is assured that the contents of the protected vault
do not have an intrinsic value in money, the amount indicated in the
clause mt;.y be accepted as appropriate. If at any time there is a
loss of oronerty which is susceptible to accurate evaluation, then
the stipulated amount mi.-ht be considered so disproportionate as to
permit an atRessment of actual damage.
?
Approved For Release 2001/09/03 : CIA-RDP84-00709R000400070095-8