PORT DISTRICTS ‑- CONTRACTS ‑- LIQUIDATING DAMAGES ‑- WAIVER.

PORT DISTRICTS ‑- CONTRACTS ‑- LIQUIDATING DAMAGES ‑- WAIVER.

A Port District may not waive liquidated damages for delayed performance provided for in an improvement contract unless such waiver is given in conformance with the terms of the contract.

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                                                                  March 16, 1956

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 55-57 No. 225

 Attention:  !ttMr. A. E. Hankins, Chief Examiner
            Division of Municipal Corporations

Dear Sir:

             You have inquired whether, under the terms of a roofing contract between the Port of Seattle and a contractor, the port may waive contractual provisions for liquidated damages for failure to complete the project within the time stated in said contract.

             Our conclusion, based on our interpretation of the contract and limited facts before us, is the Port of Seattle is without authority to waive the liquidated damages.  If the port officials, however, find certain facts (not fully presented to us) to have existed as hereinafter discussed, a valid extension of the completion date may be given, with the effect that the full contract price may be paid.

                                                                      ANALYSIS

             The letter to you from counsel for the Port of Seattle sets forth certain provisions of the contract in question.  Reference is also made therein to correspondence between representatives of the port and the contractor.  From such  [[Orig. Op. Page 2]] letter it appears § 7 of the contract provides the port may extend the stated completion time for, inter alia, delays arising through no fault of the contractor which actually prevented such contractor from completing the work within the period required by the contract.  This section also provides that the findings of the engineer approved by the Port Commission shall be accepted by the parties as final.  A further provision is that an extension of time shall not be valid unless it be in writing.  The contract is silent as to the time within which the extension or application therefor is to be made.

             Section 8 of the contract provides for specified liquidated damages for each and every day that said work remains uncompleted after the date fixed therein for the completion thereof, or, in case of a written extension, the time so extended.  Further provision is made for the withholding of the liquidated damages from the amount otherwise due the contractor.

             The completion date set in the contract was October 22, 1955.  It appears that on October 26, 1955, the chief engineer of the port wrote the contractor, calling attention to the expiration date of the completion date and stating that as of then, weather had not been a factor.  On November 2, 1955, the contractor made reply and requested an extension of time, setting forth the good faith efforts of the contractor to meet the completion date, and making reference to delays by reason of various conditions.  Thereafter the port's chief engineer advised the port commissioners in a memorandum of the foregoing, stating that the work had been completed in a satisfactory manner except for the completion thereof at a time subsequent to the contract completion date, and requested a decision from the port commissioners as to whether the liquidated damages section of the contract should be invoked or whether the port wished to extend the contract completion date for thirty days.

             There is some indication from the material you furnished us that the port commissioners may believe the delay was due to an unforeseeable cause arising through no fault of the contractor, which actually prevented him from completing the work by the stated completion date.  It is also indicated the extension of time was withheld by the port commissioners on the sole basis that application for such an extension was not timely made; otherwise they felt the extension justified.

             If the contract were between two nongovernmental parties, there would be no objection to either party waiving any provision of the contract, even though such  [[Orig. Op. Page 3]] a waiver was not provided for therein.  The same freedom of action, however, does not exist where one party to the contract is a governmental agency.

             Article 8, § 7 of the state constitution provides that no municipal corporation shall:

             ". . . give any money . . . to or in aid of any individual, association, company or corporation, . . ."

            The Port of Seattle is subject to the foregoing constitutional injunction, it being a municipal corporation.  State ex rel. Port of Seattle v. Wardall, 107 Wash. 606.  For the port to make payment to the contractor in excess of that provided for by the terms of the contract would, in our opinion, constitute a gift and be violative of the above constitutional provision.  The problem, therefore, relates directly to the question whether waiver of the liquidated damages would constitute a payment beyond that contemplated by the terms of the contract.

             Unless a written extension is given by the port we must advise that the liquidated damages may not be waived because to do so would constitute a payment of money in excess of that determined by the terms of the contract and would be, in effect, a gift.  If such an extension is given, supported by factual determinations hereinafter discussed, then no waiver would be involved since the full contract price would be payable by the very terms and conditions of the contract itself.

             The engineer for the port has stated that weather was not a cause for the delay but, from the information before us, we have no indication whether the port engineer has found the existence of some other unforeseeable cause arising through no fault of the contractor, which prevented the timely completion.  If the engineer so finds then, in our opinion, the Port Commission may forego the liquidated damages.

             We have previously noted the silence of the contract as to the time within which application for extension must be made and likewise as to the time within which written extension may be authorized.  In the absence of such detail in the contract, it is our opinion that the commissioners are not precluded from granting an extension in writing, even though the application for extension was made on the date previously noted.

             In the case of Clarke v. City of Albany, 261 S.W. (2d) 435, a somewhat similar contract was involved.  There it was provided that a request for extension must be made within ten days from the beginning of the delay.  The request was not  [[Orig. Op. Page 4]] made within such period of time.  Relative thereto, the court stated:

             ". . .  The contract expressly granted to the engineer the right to extend the time for completion.  Since he had authority to extend the time, he also had authority to waive the ten-day notice provision. . . ."

             In the case before us no provision is made as to the time within which application for extension is to be made, nor the time within which written authorization for the extension is to be given.  Accordingly, it is not violative of the terms of the contract for the port commissioners to accept an application for extension made subsequent to the stated completion date and for the port commissioners then to act thereon, if they agree with a finding made by its engineer that failure to meet the completion date was occasioned through some unforeseeable cause of delay arising through no fault of the contractor, and which prevented the timely completion.  Upon the making of such a finding, approved by the port commissioners, followed by a written extension of time, payment of the full contract price could be made.  Until the foregoing are accomplished, the liquidated damages must be withheld.

 Very truly yours,
 DON EASTVOLD
Attorney General 

FRANK P. HAYES
Assistant Attorney General