B-160641, MAR. 8, 1967

B-160641, MAR. 8, 1967

TO UNITED PACIFIC INSURANCE COMPANY:

REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 3, 1967, WITH ENCLOSURE, AND YOUR SUPPLEMENTAL LETTER DATED FEBRUARY 1, 1967, WITH ENCLOSURE, ADVISING THAT YOUR COMPANY IS SURETY ON CERTAIN BONDS POSTED BY TIMBER ACCESS INDUSTRIES COMPANY, AS PRINCIPAL, IN CONNECTION WITH VARIOUS TIMBER SALES AND ROAD CONSTRUCTION CONTRACTS BETWEEN TIMBER ACCESS INDUSTRIES COMPANY AND THE UNITED STATES DEPARTMENTS OF AGRICULTURE (FOREST SERVICE) AND INTERIOR (BUREAU OF LAND MANAGEMENT). THE BONDS AND CONTRACTS ARE LISTED IN THE ENCLOSURE WITH YOUR LETTER OF JANUARY 3, 1967.

YOU STATE THAT YOU RECENTLY RECEIVED DEMANDS FROM THE FOREST SERVICE, DEPARTMENT OF AGRICULTURE, FOR PAYMENT UNDER CERTAIN OF THE BONDS BY REASON OF DEFAULTS OF TIMBER ACCESS INDUSTRIES COMPANY, UNDER SEVERAL OF ITS CONTRACTS.

YOU ALSO STATE THAT TIMBER ACCESS INDUSTRIES COMPANY HAS INFORMED YOU THAT THE VARIOUS ASSETS AND SECURITY HELD BY THE UNITED STATES BELONGING TO OR OWING TO TIMBER ACCESS INDUSTRIES COMPANY CONSISTING PRIMARILY OF CASH DEPOSITS, ROAD CONSTRUCTION CREDITS AND ROAD CONSTRUCTION WORK ACTUALLY PERFORMED, SUBSTANTIALLY EXCEED IN VALUE ANY CLAIMS THE UNITED STATES NOW HAS OR IS LIKELY TO HAVE AGAINST TIMBER ACCESS INDUSTRIES COMPANY UNDER THE CONTRACTS AND BONDS.

IT IS YOUR POSITION THAT YOU ARE ENTITLED TO HAVE THE GOVERNMENT APPLY THESE ASSETS OF TIMBER ACCESS INDUSTRIES COMPANY TO ANY CLAIM THE GOVERNMENT MAY HAVE AGAINST THE BONDS BEFORE ATTEMPTING TO COLLECT ANY SUMS FROM THE SURETY. YOU FURTHER DEMAND THAT THE GENERAL ACCOUNTING OFFICE SETTLE AND ADJUST ALL CLAIMS AND DEMANDS WHATEVER BY THE GOVERNMENT AGAINST TIMBER ACCESS INDUSTRIES COMPANY OR BY TIMBER ACCESS INDUSTRIES COMPANY AGAINST THE GOVERNMENT, UNDER SECTION 71 OF TITLE 31 UNITED STATES CODE.

WE ARE IN RECEIPT OF A LETTER DATED JANUARY 10, 1967, FROM THE TIMBER ACCESS INDUSTRIES COMPANY WHICH STATES, IN PART:

"TIMBER ACCESS INDUSTRIES CO. DOES APPRECIATE THE CONCERN OF UNITED PACIFIC INSURANCE COMPANY AND DOES NOT DESIRE TO TAKE ANY ACTION OR TO OPPOSE ANY ACTION WHICH WILL PREJUDICE THAT COMPANY IN SUCH FASHION AS TO CAUSE IT TO LOSE THE PRESENT PREFERRED POSITION, IF ANY, IT MIGHT HAVE IN RELATION TO OTHER CREDITORS OF TIMBER ACCESS INDUSTRIES CO.

"OF EQUAL IMPORTANCE, TIMBER ACCESS INDUSTRIES CO. ALSO EXPECTS TO PERFORM EACH AND EVERY CONTRACT WHICH IT HAS ENTERED INTO WITH THE UNITED STATES OF AMERICA AND DOES NOT DESIRE THAT ANY ACTION BE TAKEN WHICH WILL PLACE ANY OF THOSE CONTRACTS IN JEOPARDY OR DEFAULT. WE FEEL THAT THE INTEREST OF TIMBER ACCESS INDUSTRIES CO. AND UNITED PACIFIC INSURANCE COMPANY ARE PARALLEL IN THAT REGARD SINCE UNITED PACIFIC INSURANCE COMPANY HAS A PERFORMANCE BOND OUTSTANDING ON EACH OF THE CONTRACTS IN QUESTION.

"WE DO NOT KNOW OF ANY FUNDS, CREDITS, DEMANDS OR CLAIMS OF TIMBER ACCESS INDUSTRIES CO. IN THE POSSESSION, CUSTODY OR CONTROL OF THE UNITED STATES OF AMERICA WHICH ARE NOT APPROPRIATED AND COMMITTED TO THE UNITED STATES OF AMERICA ON ACCOUNT OF OBLIGATIONS WHICH TIMBER ACCESS INDUSTRIES CO. HAS UNDERTAKEN IN FAVOR OF THE GOVERNMENT. IF THERE ARE ANY SUCH UNAPPROPRIATED OR UNCOMMITTED FUNDS OR CLAIMS, WE WOULD BE HAPPY TO HAVE THE UNITED STATES OF AMERICA OFFSET THEM AGAINST OBLIGATIONS OWED TO THE UNITED STATES OF AMERICA.'

SECTION 71 OF TITLE 31, U.S.C. PROVIDES:

"ALL CLAIMS AND DEMANDS WHATEVER BY THE GOVERNMENT OF THE UNITED STATES OR AGAINST IT, AND ALL ACCOUNTS WHATEVER IN WHICH THE GOVERNMENT OF THE UNITED STATES IS CONCERNED, EITHER AS DEBTOR OR CREDITOR, SHALL BE SETTLED AND ADJUSTED IN THE GENERAL ACCOUNTING OFFICE.'

THE EXPRESSION "ALL CLAIMS AND DEMANDS WHATEVER" CONTEMPLATES CLAIMS OR DEMANDS FOR THE PAYMENT OF MONEY AND THE ADJUSTMENT OF DEBITS AND CREDITS IN AN ACCOUNT, WHETHER IT BE IN THE ACCOUNTS OF DISBURSING OFFICER OR IN THE ACCOUNT OF AN INDIVIDUAL CLAIMANT OR DEBTOR. SINCE IT APPEARS THAT YOU ARE A DEBTOR OF THE UNITED STATES UNDER THE DEFAULTED CONTRACTS, TO THE EXTENT OF YOUR BONDS, YOUR RIGHT TO CONSIDERATION OF THE MATTER IS LIMITED TO THE QUESTION OF WHETHER YOU ARE OR ARE NOT OBLIGATED TO THE UNITED STATES, AND THE RIGHT OF THE UNITED STATES TO THE OFFSET OF AMOUNTS, IF ANY, DUE YOUR COMPANY.

IT DOES NOT APPEAR THAT YOU QUESTION YOUR LIABILITY UNDER THE DEFAULTED CONTRACTS, BUT HAVE NOT, AT THIS TIME, MET YOUR OBLIGATION UNDER THE BONDS. WE DO NOT DOUBT THAT ANY CREDITS OR SUMS DUE THE TIMBER ACCESS INDUSTRIES COMPANY, UNDER THE DEFAULTED CONTRACTS IN THE HANDS OF THE GOVERNMENT, WILL BE APPLIED FIRST TO THE DEBTS OF THE COMPANY UNDER THESE CONTRACTS. HOWEVER, WE ARE AWARE OF NO AUTHORITY THAT WOULD REQUIRE THE GOVERNMENT TO WITHHOLD SUMS DUE AND PAYABLE TO THE CONTRACTOR ON UNDEFAULTED CONTRACTS PRIOR TO COMPLETION OF THE CONTRACT.

IN THIS LATTER CONNECTION, IT MAY BE OBSERVED THAT IF THE GOVERNMENT SHOULD WITHHOLD AMOUNTS DUE ON UNDEFAULTED CONTRACTS DURING PROGRESS OF THE CONTRACTS, THE GOVERNMENT MAY BE CONSIDERED AS HAVING BREACHED THE CONTRACTS AND BE SUBJECT TO LIABILITY FOR DAMAGES.

ALSO IN THIS CONNECTION, IT IS OUR OPINION THAT THE GOVERNMENT IS UNDER NO OBLIGATION TO OFFSET MONIES DUE THE CONTRACTOR ON UNRELATED CONTRACTS FOR THE PURPOSE OF SAVING THE SURETY HARMLESS ON DEFAULTED CONTRACTS. SEE STEARNS LAW OF SURETYSHIP (1951) ED.), SECTION 6.51 "RELEASE OF PROPERTY NOT HELD AS SECURITY" WHICH STATES:

"IF THE CREDITOR HOLDS FUNDS OF THE PRINCIPAL ARISING OUT OF SOME OTHER TRANSACTION, HE NEED NOT APPLY THESE FUNDS TO THE DEBT FOR WHICH THE SURETY IS LIABLE, BUT MAY PAY THE PRINCIPAL AND PROCEED AGAINST THE SURETY. * * *"

IT MIGHT BE THAT, DUE TO THE CONTRACTOR'S UNSTABLE FINANCIAL POSITION, WHEN THE PAYMENTS ARE DUE UNDER THE UNRELATED CONTRACTS, THE GOVERNMENT WILL HAVE ITS OWN CLAIM AGAINST THE CONTRACTOR, SUCH AS UNPAID TAXES.

IT ANY EVENT, IT WOULD APPEAR THAT AT THE PRESENT TIME YOU HAVE DEFAULTED ON YOUR BONDS ON THE DEFAULTED CONTRACTS BY REFUSING TO MAKE PAYMENT TO THE GOVERNMENT OF AMOUNTS DUE. SHOULD YOU MAKE PAYMENT, YOU COULD PRESENT A CLAIM HERE FOR REFUND, SETTING FORTH THE BASIS FOR THE CLAIM AND CITING AUTHORITY FOR YOUR POSITION.

YOU REFER, IN YOUR LETTER OF FEBRUARY 1, 1967, TO THE CLAUSES OF YOUR AGREEMENT WITH TIMBER ACCESS INDUSTRIES COMPANY CONSTITUTING AN ASSIGNMENT BY TIMBER ACCESS INDUSTRIES COMPANY TO UNITED PACIFIC INSURANCE COMPANY OF ALL ITS ASSETS. AS TO THIS ASSIGNMENT, YOUR ATTENTION IS INVITED TO SECTION 203 OF TITLE 30, U.S.C. PROHIBITING THE ASSIGNMENT OF CLAIMS AGAINST THE GOVERNMENT.

WE HAVE NO INFORMATION OR KNOWLEDGE CONCERNING THE STATUS OF THE CONTRACTS OF TIMBER ACCESS INDUSTRIES COMPANY, NOR WOULD WE HAVE UNTIL REPORTED HERE BY THE RESPECTIVE ADMINISTRATIVE AGENCIES CONCERNED. SUGGEST THAT YOU COMMUNICATE DIRECTLY WITH THE FOLLOWING OFFICES FOR AUTHORITATIVE INFORMATION:

DIRECTOR, DIVISION OF TIMBER MANAGEMENT

ROOM 3204, SOUTH BUILDING

DEPARTMENT OF AGRICULTURE

WASHINGTON, D.C.

AND

CHIEF, FORESTRY STAFF

BUREAU OF LAND MANAGEMENT

ROOM 3559

DEPARTMENT OF THE INTERIOR

WASHINGTON, D.C.

IN CONCLUSION IT MAY BE OBSERVED THAT AT THIS TIME YOU HAVE NO LEGAL CLAIM AGAINST THE GOVERNMENT OVER WHICH OUR OFFICE MAY TAKE COGNIZANCE NOR DO YOU MAINTAIN THAT YOU ARE NOT OBLIGATED TO THE GOVERNMENT ON YOUR BONDS.

YOU MAY BE ADVISED, HOWEVER, THAT IN THE NORMAL OPERATION OF THEIR DAILY BUSINESS, DISBURSING OFFICERS WILL NOT MAKE DISBURSEMENTS TO PAYEES WHO ARE INDEBTED TO THE GOVERNMENT, WHERE THE INDEBTEDNESS HAS BEEN CALLED TO THEIR ATTENTION, UNLESS APPROVAL FOR PAYMENTS HAS BEEN OBTAINED ..END :