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B-125254, OCT. 19, 1955

B-125254 Oct 19, 1955
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BANKRUPT: REFERENCE IS MADE TO LETTERS OF AUGUST 13 AND 19. IT APPEARS THAT THE CONTRACTOR'S RIGHT TO PROCEED UNDER THE CITED CONTRACT WAS TERMINATED FOLLOWING THE COMPLETION OF ALL WORK EXCEPTING CERTAIN MINOR DETAILS. THE RECORD SHOWS THAT THE CONTRACTOR WAS PAID NINE PARTIAL PAYMENTS AND THEREAFTER. AS A RESULT THE ASSIGNEE BANK WAS PAID THE 10TH PARTIAL CONTRACT PAYMENT ON JUNE 15. THE INTERNAL REVENUE SERVICE REPORTED TO THE DEPARTMENT OF THE ARMY THAT THE CONTRACTOR WAS INDEBTED TO THE UNITED STATES FOR OUTSTANDING FEDERAL TAXES. IT IS REPORTED THE TAX INDEBTEDNESS ACCRUED PRIOR TO THE EXECUTION OF THE SAID ASSIGNMENT. IN THESE CIRCUMSTANCES THE FINAL PAYMENT VOUCHER WAS TRANSMITTED TO THIS OFFICE FOR DIRECT SETTLEMENT PURSUANT TO APPLICABLE LAW.

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B-125254, OCT. 19, 1955

TO MR. ROBERT E. CALDER, TRUSTEE OF PORT CONSTRUCTION COMPANY, INC., BANKRUPT:

REFERENCE IS MADE TO LETTERS OF AUGUST 13 AND 19, 1955, WITH ENCLOSURES, FROM YOUR ATTORNEY, IN EFFECT, REQUESTING REVIEW OF THE ACTION TAKEN IN SETTLEMENT CERTIFICATE NO. 2261232, DATED MAY 19, 1955, WHICH AUTHORIZED PAYMENT OF $25,039.53 TO THE TREASURER OF THE UNITED STATES FROM THE FINAL AMOUNT FOUND DUE UNDER CONTRACT NO. DA-31 075-ENG-179, DATED JUNE 28, 1952, IN PARTIAL LIQUIDATION OF THE TAX INDEBTEDNESS TO THE UNITED STATES OF THE PORT CONSTRUCTION COMPANY INC.

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

AFTER COMPLETION OF ALL THE CONTRACT WORK, THE PARTIES TO THE ASSIGNMENT (THE CONTRACTOR BEING REPRESENTED BY YOU, AS TRUSTEE IN BANKRUPTCY) IN AN INSTRUMENT DATED JULY 1, 1954, REVOKED THE ASSIGNMENT AND THEREIN REQUESTED THAT PAYMENT OF THE FINAL AMOUNT, OR $26,660.87, BE STATED IN YOUR FAVOR. THEREAFTER, THE INTERNAL REVENUE SERVICE REPORTED TO THE DEPARTMENT OF THE ARMY THAT THE CONTRACTOR WAS INDEBTED TO THE UNITED STATES FOR OUTSTANDING FEDERAL TAXES, PENALTIES, AND INTEREST, IN AN AMOUNT IN EXCESS OF THE FINAL PAYMENT DUE UNDER THE CONTRACT. IT IS REPORTED THE TAX INDEBTEDNESS ACCRUED PRIOR TO THE EXECUTION OF THE SAID ASSIGNMENT. IN THESE CIRCUMSTANCES THE FINAL PAYMENT VOUCHER WAS TRANSMITTED TO THIS OFFICE FOR DIRECT SETTLEMENT PURSUANT TO APPLICABLE LAW. IN THE CERTIFICATE OF SETTLEMENT CONSIDERATION WAS GIVEN THE LEGAL EFFECT OF THE FORMAL REVOCATION OF THE ASSIGNMENT, THUS ELIMINATING THE ASSIGNEE BANK AS A CLAIMANT AND LEAVING THE TRUSTEE IN BANKRUPTCY (ACTING FOR THE CONTRACTOR), AND THE SURETY, AS THE PARTIES INTERESTED IN THE FINAL AMOUNTS EARNED UNDER THE CONTRACT. THE SETTLEMENT ACTION WAS TAKEN PURSUANT TO THE DECISION CITED THEREIN, AND THE CONTRACTOR'S APPORTIONED SHARE WAS APPLIED IN PARTIAL LIQUIDATION OF THE REPORTED TAX INDEBTEDNESS. IN ADDITION TO THE AUTHORITIES CITED THEREIN, PARTICULAR ATTENTION IS INVITED TO THE CASE OF STANDARD ACCIDENT INSURANCE COMPANY V. UNITED STATES, 119 C.CLS. 749,WHEREIN THE COURT HELD IN SUBSTANCE THAT THE GOVERNMENT'S RIGHT TO SET OFF THE RETAINED PERCENTAGES AGAINST THE CONTRACTOR'S TAX DEBT WAS SUPERIOR TO THE COMPLETING SURETY'S RIGHTS AS SUBROGEE.

IN YOUR ATTORNEY'S LETTER OF AUGUST 13, 1955, THE SET-OFF ACTION IS PROTESTED UPON THE GROUND THAT UNDER THE ASSIGNMENT THE ENTIRE BALANCE DUE UNDER THE CONTRACT HAD BEEN "SEQUESTERED FOR THIS PARTICULAR JOB" AND WAS, THEREFORE, NOT SUBJECT TO SET-OFF. IN SUPPORT OF THIS CONTENTION THERE HAS BEEN SUBMITTED A COPY OF A JUDGMENT RENDERED BY THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA, AT THE SPECIAL JULY TERM 1955, CIVIL NO. 579, DISMISSING THE GOVERNMENT'S PETITION TO RECOVER FOR TAX PURPOSES CERTAIN MONEYS OF THE CONTRACTOR THEN HELD BY THE BANK, TOGETHER WITH THE SUM OF $8,291.57, PAID TO IT UNDER THE ASSIGNMENT AS THE 10TH PARTIAL PAYMENT PRIOR TO THE FORMAL REVOCATION OF THAT INSTRUMENT. ASIDE FROM THE FACT THAT THE MATTER OF REVOCATION WAS NOT PERTINENT AT THE TIME OF FILING THE PETITION OR CONSIDERED BY THE COURT IN ITS DECREE THE 10TH PARTIAL PAYMENT IS NOT HERE INVOLVED. FURTHERMORE, THE SAID AMOUNT STILL APPEARS TO BE IN POSSESSION OF THE BANK, WHICH, AS STATED IN PARAGRAPH 6 OF THE JUDGMENT, HAS ENTERED SUIT NAMING ALL INTERESTED PARTIES AS DEFENDANTS, INCLUDING THE UNITED STATES, TO HAVE CONSIDERED THE VARIOUS CONFLICTING CLAIMS. IN VIEW THEREOF, AND SINCE THE BANK WAS FOUND TO HOLD NO DISTRAINABLE ASSETS OF THE CONTRACTOR, THE GOVERNMENT'S PETITION WAS DISMISSED. THEREFORE, IT MAY NOT BE CONCLUDED, AS INDICATED IN LETTER OF AUGUST 13, 1955, THAT THE DISMISSAL OF THE GOVERNMENT'S PETITION IS ANY MANNER EVIDENCES THE COURT'S DETERMINATION THAT THE REVOCATION OF THE ASSIGNMENT IS WITHOUT LEGAL SIGNIFICANCE, OR THAT SAID ASSIGNMENT WAS STILL IN EFFECT. THAT MATTER WAS NOT BEFORE THE COURT FOR DETERMINATION; CONSEQUENTLY, THE SET-OFF ACTION TAKEN BY OUR OFFICE DOES NOT VIOLATE THE COURT'S DECREE.

ACCORDINGLY, THE ACTION TAKEN IN THE SETTLEMENT OF MAY 19, 1955, IS SUSTAINED.

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