JUNE 7 (legislative day, MAY 13), 1954.-Ordered to be printed

Mr. LANGER, from the Committee on the Judiciary, submitted the

following

REPORT

[To accompany H. R. 5185]

The Committee on the Judiciary, to which was referred the bill (H. R. 5185) for the relief of Klyce Motors, Inc., having considered the same, reports favorably thereon with amendments and recommends that the bill, as amended, do pass.

AMENDMENT

Page 1, line 5, strike out the figures "$38,960" and insert in lieu thereof "$116,982.76".

Page 1, line 11, beginning with the word "in" following the word "Act", strike out all down to and including the word "thereof" on page 2, line 1.

PURPOSE

The purpose of the proposed legislation, as amended, is to authorize the Secretary of the Treasury to pay, out of any money in the Treasury not otherwise appropriated, the sum of $116,982.76, to Klyce Motors, Inc., of Memphis, Tenn., in full settlement of all claims against the United States for losses sustained under War Assets Administration sales document No. 262845 in connection with the purchase of 109 trucks, dated May 25, 1946.

STATEMENT

The facts relative to this matter are contained in House Report 1484 of H. R. 5185, which is set forth in full below.

[H. Rept. No. 1484, 83d Cong., 1st sess.)

Background of this claim: At approximately the end of or shortly after the termination of World War II, the War Assets Administration, pursuant to its regularly established procedures, offered for sale in 1945 a total of 160 motor trucks manufactured by the Four-Wheel Drive Auto Co. of Madisonville, Wis. These trucks had become surplus to the United States and were to be disposed of to an individual bidder or bidders. They were in the literature and brochures

published by the War Assets Administration represented as "new-disassembled and packed for foreign shipment." A sample FWD truck had been assembled and was displayed to prospective purchasers at the Lordstown Ordnance Depot, Lordstown, Ohio. According to specifications and representations by the WAA, the remaining number were packed in moisture-sealed paper containers and the cabs, wheels and certain other accessories were removed pending shipment overseas for use during World War II. Of four-wheel construction, these vehicles were designed for oversize tires to permit the traction of weapons and other accoutrements of war across desert sands and other soft terrain. They were generally unsuitable for the American market in that they had right-hand drive and an abnormally high center of gravity.

On the basis of the model demonstrated at the Lordstown Depot and the written representations of the WAA, the claimant, Klyce Motors, of Memphis, Tenn., entered into a contract for the purchase of 109 of the subject vehicles and deposited with the WAA its initial part payment of $96,800. After obligating themselves for the purchase of the subject 109 vehicles, the officers of Klyce Motors, prior to uncrating and inspection of them, commenced negotiations looking toward their disposal on a foreign market. A sale was tentatively arranged with a firm in the Republic of Mexico which ordered the trucks shipped by rail to Mexico City. The purchase price agreed upon between Klyce Motors and its potential customer was the then legally permissible cost price plus 5 percent margin of profit at that time permitted by the rules and regulations of the Office of Price Administration.

Unfortunately for the claimant, however, an embargo placed on the movement of railroad cars from the United States to the Republic of Mexico by the Association of American Railroads prevented the transshipment of the subject vehicles into Mexico. The prospective vendees thereupon ordered the trucks assembled and driven from the point of assembly to Mexico City. Agents of Klyce Motors thereupon journeyed to Lordstown Ordnance Depot and attempted assembly of the trucks. It was at this time that the damage to them was discovered by the claimant. Presumably as a result of defective packing, storing, or other factors, the vehicles suffered considerable and extensive damage from moisture. The rust of delicate parts and polished surfaces necessitated the complete rebuilding in many instances of engines, transmissions, and other parts. Similarly, batteries and other components had deteriorated as a result of long storage, requiring the purchase of new equipment at additional considerable cost to the claimant. Had the vehicles been, as represented, in "new" condition, none of this expense would have been incurred by the claimant.

Upon learning the actual condition of the trucks, the Mexican purchaser canceled its order. Claimant thereupon entered into negotiations with the WAA looking toward the cancellation of the sale between WAA and Klyce Motors and the return of the latter's partial payment of $98,800. The WAA refused to rescind the sale and instead insisted upon full payment and execution of the contract according to its original terms. Shortly thereafter the claimant made an additional payment of $207,500 to the WAA for the balance due on the first 109 trucks at the agreed price of $3,800 each. Several months later claimant obtained a loan from the Reconstruction Finance Corporation and used the funds received therefrom to pay off the balance due on the remaining 51 trucks. After complaint by the claimant as to the condition of the trucks, Government inspectors were dispatched to the Lordstown Depot to determine on behalf of the Government the extent of the damage represented by claimant. On the basis of their findings, the WAA reduced the price for the remaining 51 trucks from $3,800 to $2,374 each, or a reduction of approximately 371⁄2 percent. It may be noted in passing that had the WAA applied this reduced figure to the initial group of 109 trucks, the claimant would have received back from the United States the sum of $155,435, or $38,452.24 more than the compensation provided in the instant bill.

After refusal of the WAA to rescind its original contract with the claimant then entered into negotiations with the agency in order to effect a price adjustment on the initial purchase. In response to claimant's request, WAA proposed an adjustment of 5 percent of the purchase price paid presumably on the basis of the 5 percent profit limitation figure imposed by OPA regulations. On this basis a refund of $20,710 was made to claimant although it was recognized by all parties that this amount was a small part of the known and anticipated losses suffered by claimant. At this time claimant was not represented by counsel and has subsequently shown that the so-called surplus property scandals much in the public press during the 1946-47 period served to deter claimant from engaging legal counsel that might through their conduct prejudice claimant's interest before the WAA. Urged through correspondence and telephone calls, claimant accepted

the $20,710 payment from WAA, particularly in the light of the agency's representations that should the statute of limitations be evoked, claimant would receive nothing in compensation for its losses sustained. At the time of acceptance of this payment and acknowledgment of release, Klyce Motors had not commenced the inspection or reconditioning of the remaining 48 trucks and therefore was in no position, had its rights and interests been fully protected, to accept a settlement on the basis of the then-known damage.

That such a purported settlement of Klyce Motors' losses was extremely favorable, to say the least, to the Government is indicated in a statement of the General Services Administrator directed to the chairman in a letter dated November 24, 1953: "* ** subsequent developments indicate that the amount of the settle ment was far less than claimant's actual damages." Claimant, pursuant to the request of WAA, submitted to that agency photostatic copies of all receipts, invoices, and other data establishing its losses in specific and most detailed amounts. Originals of these sheets were made available for the committee staff's inspection. Despite some evidence of additional losses, the claimant has agreed in concert with appropriate Government accounting agencies that its losses amounted to the sum of $116,982.76, and accordingly the subject bill compensates the claimant in that amount. Messrs. Arnold Klyce and Byron Hyde, officers of the claimant company, Klyce Motors, have submitted a joint affidavit setting forth in general the facts attendant upon the company's transactions giving rise to this bill. A more detailed affidavit by Mr. Hyde, the prime contractor for the company, was also submitted. Copies of these affidavits are included hereinafter.

A report was solicited by the committee from the General Services Administration together with an opinion upon the merits of H. R. 5185. The GSA is not opposed to the enactment of this bill and the agency has reported to the committee that the equities of the matter are in favor of the claimant. The report also states that "the record clearly shows that there was a breach of warranty by the Government in the transaction. . ." In a letter dated October 12, 1953, to the Director of the Bureau of the Budget, the Honorable Lindsay C. Warren, Comptroller General of the United States, took the view that there was no way in which the claimant could collect the amount claimed by legal action because of the purported release executed by the claimant. He also stated that his Office had no information as to the basis of the additional claim presented. Obviously claimant's supporting receipts, invoices and other documents were not transmitted to the Office of the Comptroller General who relied entirely on the legal determination. In a similar communication dated October 30, 1953, Robert W. Minor, Acting Deputy Attorney General, reported to the Director of the Bureau of the Budget that as a matter of law claimant was estopped from claiming further damages in view of the execution of the purported general release. Mr. Minor stated further that: "The General Accounting Office which subsequently considered the claim, determined that there was no basis on which it could authorize payment of any further amount in view of the complete release executed by claimant." Mr. Minor goes on to state that the General Services Administration report discloses that: "Disregarding the legal position it is a fact that the Government has received from the claimant far more than the actual value of the trucks in their true condition.'

Although the Assistant Attorney General and the Comptroller General recommended against the enactment of H. R. 5185, the GSA, having full knowledge of their recommendations and reports saw fit to recommend to the committee that the GSA was not opposed to the enactment of the subject bill. The fact that GSA, having the benefit of information and recommendations from other Government agencies, could not agree with their position, is of great significance to the committee. As primary recipient and custodian of all of the basic evidence relating to this matter, including appropriate bills of sale, receipted bills, exhibits and all other pertinent data available to the Government, the General Services Administration is in a far better position to recognize the equities involved and make recommendations as to rectification of an error perpetrated upon a private individual by an agency of the United States. The committee finds no scintilla of evidence showing that the claimant was in any form at fault regarding the conceded misrepresentation on the part of the WAA. Nor had claimant any means of knowing that the goods represented as "new" by the WAA were in fact in the condition now admitted by the Government. The legal technicality of claimant's having, under some degree of stress and coercion, signed a purported release to the Government should not be used by an agency of the United States as a peg upon which to hang a hat of inequity. The purpose of private legislation of this type is to rectify inequities otherwise beyond the purview of legal remedy.. Accordingly, the committee after much discussion reduced the amount to one

58003°-55 S. Repts., 83-2, vol. 3-77

third of the original amount as set forth in the bill, and recommend the enactment as amended.

The report of the General Services Administration reads, in part, as follows:

As a matter of law it is apparent that the claimant, through execution of the general release, is estopped from claiming further damages as a result of the transaction.

Nevertheless, the record clearly shows that there was a breach of warranty by the Government in the transaction and that the $20,710 price adjustment accepted by the claimant in settlement of damages for such breach was an extremely reasonable settlement from the Government's viewpoint. While there is evidence to indicate that said amount approximated claimant's best estimate of the amount of his damages at the time the settlement was made, subsequent developments indicate that the amount of the settlement was far less than claimant's actual damages.

Except for the claimant's injudicious action in executing a final release it appears that the equities of the matter are in its favor. Disregarding the legal position it is a fact that the Government has received from the claimant far more than the actual value of the trucks in their true condition.

The General Services Administration, therefore, is not opposed to the enactment of H. R. 5185.

The report of the Comptroller General of the United States, after a review of the facts, concludes as follows:

Clearly, in view of the final release executed by the corporation, there is no legal liability on the part of the Government to pay any part of the amount claimed. Furthermore, because of the substantial doubt existing as to the responsibility for the reported mechanical failures of the trucks, and the uncertainty of the costs involved, it is not believed that Klyce Motors, Inc., is entitled to any legislative relief.

Accordingly, I strongly recommend against enactment of the bill.

The report of the Attorney General, in reference to its recommendation, reads as follows:

The settlement in the case was, it appears from the proposed report of the General Services Administration, freely made in good faith by both parties with no taint of misrepresentation or duress of any kind whatsoever. It is obvious, of course, that many settlements represent an acceptance by at least one of the partics of a result less favorable to him than that to which he believed he was entitled. The allowance of claims of the kind here presented, after a solemn settlement of the controversy, would result in vitiating agreements with the Government generally. Furthermore, it would establish a precedent for the granting of numerous claims, despite settlements previously made, and the paying of enormous sums by the United States because of the mistakes made by the claimants.

Accordingly, the Department of Justice recommends that the enactment of the bill be opposed.

The committee has studied the claim and is of the opinion that here is a situation in which, due to a failure to abide by the warranties given relative to the merchandise sold to this claimant, the Government has been unjustly enriched in the amount set forth in the bill as amended. At a hearing before the committee, it was determined that this amount is the actual out-of-pocket loss of this claimant.

It is true that the claimant did sign a release in full. It is also true that this was an injudicious action on its part. While, legally speaking, that release operates as a bar to any recovery of this claimant to any sums to which he might be equitably or morally entitled, the fact remains that the Government has been unjustly enriched to the extent of the money represented by this legislation.

The committee, therefore, recommends that the bill, as amended, be considered favorably.