B-142060, JUN. 25, 1964

B-142060, JUN. 25, 1964

TO HART, HUME AND ENGLEMAN:

REFERENCE IS MADE TO YOUR LETTERS OF MAY 15 AND 21, 1964, AND PREVIOUS CORRESPONDENCE, CONCERNING THE CLAIM OF YOUR CLIENT, THE HANOVER INSURANCE COMPANY AS SUCCESSOR TO THE MASSACHUSETTS BONDING COMPANY, SURETY ON THE PERFORMANCE AND PAYMENT BONDS FURNISHED IN RELATION TO CONTRACT NO. NBY- 21183, DATED DECEMBER 12, 1958, AS AMENDED. THE CONTRACT WAS AWARDED TO OVE GUSTAVSSON CONTRACTING COMPANY, INCORPORATED, BY THE BUREAU OF YARDS AND DOCKS, DEPARTMENT OF THE NAVY, FOR THE FURNISHING OF ALL LABOR, EQUIPMENT AND MATERIALS REQUIRED FOR THE REPAIR OF THE SEAWALL AND REPLACEMENT OF FENDERS ON PIER "G" AT THE NEW YORK NAVAL SHIPYARD, BROOKLYN, NEW YORK. IT HAD BEEN PREVIOUSLY ALLEGED THAT THE SURETY MADE PAYMENTS TO THE CONTRACTOR'S LABORERS AND MATERIALMEN IN EXCESS OF THE BALANCE DUE UNDER THE CONTRACT BUT WE HAVE NOT BEEN ADVISED AS TO WHETHER ALL CLAIMS OF LABORERS AND MATERIALMEN HAVE NOW BEEN PAID.

WE RECEIVED A REPORT FROM THE BUREAU OF YARDS AND DOCKS INDICATING THAT THERE HAVE BEEN FOUR CLAIMANTS FOR THE SUM OF $17,516, REPRESENTING AN INCREASE IN CONTRACT PRICE ALLOWED UNDER CHANGE ,F" TO THE CONTRACT EXECUTED ON MAY 15, 1963, ALMOST THREE YEARS AFTER THE SATISFACTORY COMPLETION OF ALL OF THE WORK REQUIRED UNDER THE TERMS OF THE CONTRACT AND AMENDMENTS THERETO. ONE OF THE CLAIMANTS WAS ADVISED BY THE BUREAU THAT THE ASSIGNMENT WHICH HE SUBMITTED WAS INEFFECTIVE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED. THERE REMAINED FOR CONSIDERATION THE QUESTION AS TO THE RESPECTIVE RIGHTS OF THE BONDING COMPANY, THE CONTRACTOR AND THE CONTRACTOR'S ASSIGNEE BANK, THE MARINE MIDLAND TRUST COMPANY OF NEW YORK. THE CONTRACTOR'S CLAIM WAS BASED IN PART UPON AN APPARENTLY ERRONEOUS CONTENTION THAT THE SURETY HAD NO VALID CLAIM TO AN AMOUNT DUE UNDER CHANGE "F" TO THE CONTRACT BECAUSE THE PARTIES PAID BY THE SURETY DID NOT FURNISH MATERIALS OR LABOR FOR THE PERFORMANCE OF THE WORK INVOLVED IN THE PRICE INCREASE ALLOWED BY THE PARTICULAR CONTRACT AMENDMENT.

THE BUREAU OF YARDS AND DOCKS FINALLY DETERMINED THAT IT SHOULD RETAIN THE AMOUNT DUE UNDER THE AMENDED CONTRACT UNTIL SUCH TIME AS THERE HAD BEEN REACHED AN AGREEMENT AMONG THE THREE PRINCIPAL CLAIMANTS, OR PENDING A DETERMINATION OF THEIR RIGHTS BY A COURT OF COMPETENT JURISDICTION. THE POSITION OF THE BUREAU WAS CONSIDERED BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS IN A DECISION DATED APRIL 9, 1964, ASBCA NO. 9375, WHICH CONCERNED AN ATTEMPTED REPUDIATION BY THE CONTRACTOR OF CHANGE "F" TO THE CONTRACT, BASED UPON AN ALLEGED BREACH BY THE GOVERNMENT OF ITS AGREEMENT TO PAY TO THE CONTRACTOR THE AMOUNT OF $17,516 WITHIN A REASONABLE TIME. THE BOARD, IN DISMISSING THE CONTRACTOR'S APPEAL, CITED CERTAIN FEDERAL COURT DECISIONS WHICH RECOGNIZED THE EQUITABLE RIGHTS OF SURETIES WHERE THEY HAVE PAID LABORERS AND SUPPLIERS IN MEETING THEIR OBLIGATIONS UNDER CONTRACT PAYMENT BONDS. HOWEVER, THE BOARD REFUSED TO RULE SPECIFICALLY ON THE PROPRIETY OF THE ACTION TAKEN BY THE NAVY TO PROTECT THE GOVERNMENT'S INTERESTS IN THE MATTER OF THE CONFLICTING CLAIMS.

THE COURT DECISIONS CITED BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS HAVE BEEN PREVIOUSLY CONSIDERED BY THIS OFFICE AS NOT CONSTITUTING A SUFFICIENT BASIS FOR OUR AUTHORIZATION OF PAYMENT OF THE BALANCE DUE UNDER A GOVERNMENT CONTRACT TO THE SURETY ON THE PAYMENT BOND AS THE CLAIMANT ENTITLED TO PRIORITY, IF THE CONTRACTOR IS NOT BANKRUPT, OR IF THE MONEYS DUE OR TO BECOME DUE UNDER THE CONTRACT HAVE BEEN ASSIGNED TO A BANK, TRUST COMPANY OR OTHER FINANCING INSTITUTION, INCLUDING ANY FEDERAL LENDING AGENCY, PURSUANT TO THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED. ALSO, WE HAVE CONSISTENTLY TAKEN THE POSITION THAT A PAYMENT BOND SURETY'S RIGHT OF PRIORITY OVER OTHER CLAIMANTS CANNOT OTHERWISE BE RECOGNIZED UNTIL THE SURETY HAS SATISFIED ALL CLAIMS FOR LABOR AND MATERIALS FURNISHED IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT WORK. SEE UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73; AND AMERICAN SURETY COMPANY V. WESTINGHOUSE ELECTRIC MANUFACTURING COMPANY, ET AL., 296 U.S. 133 CF. UNITED PACIFIC INSURANCE COMPANY V. UNITED STATES, 319 F. 2D 893; AND CONTINENTAL CASUALTY COMPANY V. UNITED STATES, CT.CL.NO. 63-57, DECIDED JANUARY 24, 1964.

SINCE THERE IS A SUBSTANTIAL DOUBT AS TO THE SURETY'S RIGHT TO PRIORITY IN THIS CASE, WE WOULD NOT BE JUSTIFIED IN GIVING FAVORABLE CONSIDERATION TO YOUR PREVIOUS SUGGESTION THAT, IN RETURN FOR PAYMENT AUTHORIZATION TO THE HANOVER INSURANCE COMPANY, WE ACCEPT HANOVER'S UNDERTAKING TO HOLD THE UNITED STATES AND ITS OFFICIALS HARMLESS FROM ANY LOSS, EXPENSE OR CLAIM AGAINST IT OF ANY TYPE ARISING OUT OF OR IN CONNECTION WITH THE PAYMENT OF THE CONTRACT BALANCE TO HANOVER.

WITH RESPECT TO THE QUESTION RAISED AS TO THE FORM OF STATEMENT WHICH SHOULD BE MADE BY THE MARINE MIDLAND TRUST COMPANY OF NEW YORK OF ITS POSITION IN THE MATTER IF IT INTENDS TO RELINQUISH A CLAIM FOR THE SUM OF $17,516, OR FOR ANY PART THEREOF, NO SPECIAL FORM OF STATEMENT WOULD BE NECESSARY BUT THE STATEMENT SHOULD BE SIGNED BY AN AUTHORIZED OFFICIAL OF THE COMPANY AND CLEARLY EVIDENCE THE FACT THAT THE COMPANY HAS NO INTEREST IN OR CLAIM TO THE AMOUNT OF $17,516 AND THAT THE ASSIGNMENT IS RELEASED OR CANCELED.

IF SUCH A STATEMENT SHOULD BE OBTAINED AND SUBMITTED TO THIS OFFICE, WE WOULD THEN BE IN A POSITION TO AUTHORIZE THE ISSUANCE OF A CHECK IN FAVOR OF OVE GUSTAVSSON CONTRACTING COMPANY, INCORPORATED, AS IN FULL AND FINAL SETTLEMENT OF ALL CLAIMS AGAINST THE UNITED STATES ARISING OUT OF CONTRACT NO. NBY-21183, AS AMENDED, OR WORK IN CONNECTION THEREWITH. IN ACCORDANCE WITH OUR USUAL PRACTICE IN CASES OF THIS NATURE, THE PAYMENT AUTHORIZATION WOULD PROVIDE FOR THE MAILING OF THE CHECK IN CARE OF THE SURETY COMPANY, PROVIDED ASSENT THERETO IS GIVEN US BY THE CONTRACTOR.