A-7780, SEPTEMBER 6, 1927, 7 COMP. GEN. 186

A-7780: Sep 6, 1927

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THE COMMON-LAW RIGHT OF EVERY CREDITOR TO APPLY THE MONEYS OF HIS DEBTOR IN HIS COMMON-LAW RIGHT OF EVERY CREDITOR TO APPLY THE MONEYS OF HIS DEBTOR IN HIS HANDS IN THE EXTINGUISHMENT OF CLAIMS DUE HIM FROM THE DEBTOR IS EQUALLY AS APPLICABLE TO THE GOVERNMENT AS TO INDIVIDUALS. THE APPOINTMENT OF A RECEIVER FOR A CORPORATION WHICH IS BOTH DEBTOR AND CREDITOR OF THE UNITED STATES DOES NOT AFFECT THE RIGHT OF SET-OFF THEN EXISTING IN THE GOVERNMENT TO APPLY THE AMOUNT OF MONEYS DUE THE CORPORATION IN PARTIAL LIQUIDATION OF THE INDEBTEDNESS DUE THE UNITED STATES. WERE OFFSET AGAINST AND APPLIED IN PARTIAL LIQUIDATION OF THE REPORTED INDEBTEDNESS OF SAID CORPORATION TO THE UNITED STATES IN THE SUM OF $1.

A-7780, SEPTEMBER 6, 1927, 7 COMP. GEN. 186

ACCOUNTING - SET-OFF - RECEIVERSHIP THE UNITED STATES HAS ALWAYS THE RIGHT TO SET OFF AGAINST AN AMOUNT DUE A CLAIMANT ANY SUM THE SAME PERSON, COMPANY, OR CORPORATION OWES TO THE GOVERNMENT EITHER UNDER THE SAME OR OTHER CONTRACTS OR OBLIGATIONS. THE COMMON-LAW RIGHT OF EVERY CREDITOR TO APPLY THE MONEYS OF HIS DEBTOR IN HIS COMMON-LAW RIGHT OF EVERY CREDITOR TO APPLY THE MONEYS OF HIS DEBTOR IN HIS HANDS IN THE EXTINGUISHMENT OF CLAIMS DUE HIM FROM THE DEBTOR IS EQUALLY AS APPLICABLE TO THE GOVERNMENT AS TO INDIVIDUALS. THE APPOINTMENT OF A RECEIVER FOR A CORPORATION WHICH IS BOTH DEBTOR AND CREDITOR OF THE UNITED STATES DOES NOT AFFECT THE RIGHT OF SET-OFF THEN EXISTING IN THE GOVERNMENT TO APPLY THE AMOUNT OF MONEYS DUE THE CORPORATION IN PARTIAL LIQUIDATION OF THE INDEBTEDNESS DUE THE UNITED STATES.

DECISION BY COMPTROLLER GENERAL MCCARL, SEPTEMBER 6, 1927:

ALBERT CONWAY AND WILLIAM A. YOUNG, AS RECEIVERS OF THE STANDARD SHIPBUILDING CORPORATION, APPLIED MARCH 17, 1927, FOR REVIEW OF THE TWO SETTLEMENTS NUMBERED 085008-T AND 085147-W, DATED, RESPECTIVELY, JUNE 24 AND JUNE 25, 1925, WHEREIN CERTAIN MONEYS THEREBY FOUND DUE TO SAID CORPORATION, AMOUNTING TO THE RESPECTIVE SUMS OF $172,574.47 AND $3,921.59, AGGREGATING $176,496.06, WERE OFFSET AGAINST AND APPLIED IN PARTIAL LIQUIDATION OF THE REPORTED INDEBTEDNESS OF SAID CORPORATION TO THE UNITED STATES IN THE SUM OF $1,337,000, WITH ACCRUED INTEREST, AS EVIDENCED BY ITS BOND AND MORTGAGE EXECUTED APRIL 30, 1920, TO THE UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION, AND UPON WHICH DEFAULT HAD BEEN MADE IN THE PAYMENT OF THE PRINCIPAL AND INTEREST AS THEREIN AGREED.

THE RECEIVERS OF THE DEBTOR CORPORATION QUESTION THE RIGHT OF THE UNITED STATES TO OFFSET THE SAID $176,496.06 IN PARTIAL LIQUIDATION OF THE INDEBTEDNESS OF $1,337,000, WITH ACCRUED INTEREST, DUE THE GOVERNMENT, AS HAS BEEN DONE, ALLEGING THAT THE ITEMS COMPRISING THE SUM OF $176,496.06 ARE ASSETS BELONGING TO THE RECEIVERSHIP, AND THEY REQUEST THAT SUCH MONEYS BE PAID TO THEM.

IT APPEARS THAT ON APRIL 30, 1920, THE STANDARD SHIPBUILDING CORPORATION EXECUTED TO THE UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION A BOND IN WHICH IT ACKNOWLEDGED ITS INDEBTEDNESS IN THE SUM OF $1,337,000, WHICH IT AGREED TO PAY IN FIVE ANNUAL INSTALLMENTS OF $267,400 EACH, BEGINNING ON APRIL 30, 1921, WITH INTEREST AT 5 PERCENT PER ANNUM ON ANY UNPAID AMOUNTS COMPUTED FROM APRIL 30, 1920, PAYABLE SEMIANNUALLY ON THE 30TH DAYS OF APRIL AND OCTOBER IN EACH YEAR. UNDER THE PROVISIONS OF THE BOND, AFTER DEFAULT IN THE PAYMENT OF INTEREST FOR 60 DAYS, OR AFTER DEFAULT IN THE PAYMENT OF ANY INSTALLMENT OF THE PRINCIPAL, THE TOTAL AMOUNT OF THE INDEBTEDNESS WOULD BECOME DUE AND PAYABLE. TO SECURE THE PAYMENT OF SAID BOND A MORTGAGE WAS EXECUTED BY THE OBLIGOR TO THE OBLIGEE UNDER DATE OF APRIL 30, 1920, UPON CERTAIN PROPERTY THEREIN DESCRIBED. THE DEBTOR MADE NO PAYMENT OF THE PRINCIPAL OR OF THE INTEREST DUE THEREON. BY REASON OF SUCH DEFAULT THE $1,337,000 INDEBTEDNESS, WITH ACCRUED INTEREST, BECAME DUE AND PAYABLE ON OR BEFORE DECEMBER 30, 1920.

ON MARCH 7, 1922, ALBERT CONWAY AND WILLIAM A. YOUNG WERE APPOINTED RECEIVERS OF THE STANDARD SHIPBUILDING CORPORATION BY ORDER OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK IN THE CASE OF JAMES HOWDEN AND CO. (LTD.) AGAINST THE STANDARD SHIPBUILDING CORPORATION.

OF THE MONEYS INVOLVED, THE SUM OF $172,574.47 REPRESENTS ALLOWANCES MADE BY THE COMMISSIONER OF INTERNAL REVENUE ON MAY 13, 1924, ON CERTAIN CLAIMS OF THE STANDARD SHIPBUILDING CORPORATION FOR REFUND OF INCOME TAXES ILLEGALLY COLLECTED FOR THE YEARS 1916, 1918, AND 1919, AS FOLLOWS:

CHART

NUMBERS OF

THE CERTIFICATES YEARS FOR WHICH ILLEGALLY COLLECTED TAXES OF TAX AMOUNT OF TAX

ARE REFUNDABLE OVERASSESSMENT REFUNDS ALLOWED 1916 - -------------------- -------------- 640593 $690.37 1918 ------------ ----------------------- 640591 113,860.08 1919 -------------- --------------------- 640594 58,024.02

TOTAL TAX REFUNDS ALLOWED ----------------------- 172,574.47

AND THE SUM OF $3,921.59 REPRESENTS AN ALLOWANCE MADE BY THE ACT OF MARCH 3, 1925, 43 STAT. 1588, ON THE CLAIM OF THE STANDARD SHIPBUILDING CORPORATION TO COVER DAMAGES SUSTAINED BY ITS DOLPHIN AND PIER, RESULTING FROM A COLLISION OF TWO UNITED STATES VESSELS AT SHOOTERS ISLAND, Y., ON MARCH 30, 1919.

THUS IT APPEARS THAT THE ENTIRE INDEBTEDNESS OF $176,496.06 DUE THE STANDARD SHIPBUILDING CORPORATION FROM THE UNITED STATES ACCRUED MORE THAN TWO YEARS PRIOR TO THE APPOINTMENT OF THE RECEIVERS FOR SAID CORPORATION, ALTHOUGH THE ALLOWANCES OF THE CLAIMS THEREFOR WERE NOT MADE UNTIL AFTER SUCH APPOINTMENT.

THE GENERAL RULE IS THAT A RECEIVER TAKES THE PROPERTY OF WHICH HE HAS BEEN APPOINTED IN THE SAME PLIGHT AND CONDITION AND SUBJECT TO THE SAME EQUITIES AND LIENS AS HE FINDS IT IN THE HANDS OF THE PERSON OR CORPORATION OUT OF WHOSE POSSESSION IT IS TAKEN. A RECEIVER CAN ACQUIRE NO OTHER, GREATER, OR BETTER INTEREST THAN THE DEBTOR HAD IN THE PROPERTY; HE HAS THE SAME RIGHT WHICH THE INSOLVENT WOULD HAVE HAD, AND CAN SET UP NO RIGHTS AGAINST CLAIMS WHICH THE DEBTOR COULD NOT HAVE SET UP; HE CAN TAKE NO RIGHT OR TITLE WHICH WAS EXTINGUISHED BEFORE HIS APPOINTMENT; AND WHERE PROPERTY IS CONVEYED OR ASSIGNED TO HIM BY THE PARTY UNDER THE COURT'S ORDER, THE RECEIVER CAN CLAIM ONLY SUCH RIGHTS AS THE GRANTOR OR ASSIGNOR COULD HAVE ENFORCED. THE APPOINTMENT OF A RECEIVER DOES NOT AFFECT A RIGHT OF SET-OFF THEN EXISTING. CHOSES IN ACTION PASS TO HIM SUBJECT TO THE EQUITABLE RIGHT OF SET-OFF THEN EXISTING, SO THAT A DEBTOR OF THE INSOLVENT WHO HAS SUCH RIGHT IS NOT BOUND TO PAY WHAT HE OWES AND TAKE HIS CHANCES WITH THE OTHER CREDITORS, BUT IS BOUND TO PAY ONLY THE BALANCE. SEE 34 "CYC.' 191 TO 195.

RELATIVE TO THE CONTENTION OF THE RECEIVERS THAT THE UNITED STATES DID NOT ACQUIRE THE $1,337,000 CLAIM AGAINST THE STANDARD SHIPBUILDING CORPORATION UNTIL APRIL 16, 1923, WHEN A WRITTEN ASSIGNMENT OF THE PROPERTY HELD BY THE UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION WAS EXECUTED CONVEYING SAME TO THE UNITED STATES OF AMERICA, AND THAT THE UNITED STATES THEREFORE HAD NO RIGHT OF SET-OFF THEREFROM OF THE $176,496.06 INVOLVED, ATTENTION IS DIRECTED TO SECTION 4 OF THE MERCHANT MARINE ACT OF JUNE 5, 1920, 41 STAT. 988, WHICH TRANSFERRED TO THE UNITED STATES SHIPPING BOARD ALL PROPERTY HELD BY THE UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION, WITH THE EXCEPTION OF VESSELS IN THE MILITARY OR NAVAL SERVICE OF THE UNITED STATES. IT HAS BEEN HELD THAT THE RELATIONS BETWEEN THE UNITED STATES SHIPPING BOARD AND THE UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION ARE SUCH THAT IN THE MATTER OF PROPERTY HELD BY THE CORPORATION THE OWNERSHIP IS THAT OF THE UNITED STATES. 1 COMP. GEN. 279; 2 ID. 38. THE SAID UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION HAS BEEN HELD TO BE AN AGENCY OF THE GOVERNMENT IN THE FOLLOWING COURT CASES: SOUTHERN BRIDGE CO. V. FLEET CORP., 266 FED.REP. 747; SLOAN SHIPYARDS CORP. V. FLEET CORP., 268 FED.REP. 624; 272 FED.REP. 132; ASTORIA MARINE IRON WORKS V. FLEET CORP., 270 FED.REP. 635.

IT APPEARING THAT AT THE TIME OF THE APPOINTMENT OF THE RECEIVERS FOR THE STANDARD SHIPBUILDING CORPORATION ON MARCH 7, 1922, THERE WAS DUE THE UNITED STATES FROM SAID CORPORATION AN INDEBTEDNESS OF $1,337,000, WITH ACCRUED INTEREST, AND THAT THE UNITED STATES WAS THEN INDEBTED TO THE SAID CORPORATION IN THE SUM OF $176,496.06 FOR INCOME TAXES ILLEGALLY COLLECTED AND FOR DAMAGES, AS ABOVE SET FORTH, THE UNITED STATES CLEARLY HAD THE RIGHT OF SET-OFF IN THE MATTER, IT BEING WELL SETTLED THAT THE UNITED STATES HAS ALWAYS THE RIGHT TO SET OFF AGAINST AN AMOUNT DUE A CLAIMANT ANY SUM THE SAME PERSON, COMPANY, OR CORPORATION OWES TO THE GOVERNMENT, EITHER UNDER THE SAME OR OTHER CONTRACTS OR OBLIGATIONS. THE COMMON-LAW RIGHT OF EVERY CREDITOR TO APPLY THE MONEYS OF HIS DEBTOR IN HIS HANDS IN THE EXTINGUISHMENT OF CLAIMS DUE HIM FROM THE DEBTOR IS EQUALLY AS APPLICABLE TO THE GOVERNMENT AS TO INDIVIDUALS. WHERE A CLAIMANT IS BOTH DEBTOR AND CREDITORS OF THE UNITED STATES IN ANY FORM, THE GENERAL ACCOUNTING OFFICE, IN SETTLING THE ACCOUNTS WITHIN ITS JURISDICTION NOT ONLY HAS THE AUTHORITY BUT IS REQUIRED, IN THE PROPER DISCHARGE OF ITS DUTIES, TO SET OFF ONE INDEBTEDNESS AGAINST THE OTHER, AND ALLOW AND CERTIFY FOR PAYMENT OR COLLECTION ONLY THE BALANCE DUE. SEE BARRY V. UNITED STATES, 229 U.S. 47-53; ALLEN ET AL. V. UNITED STATES, 17 WALL. 207; TAGGART V. UNITED STATES, 17 CT.CLS. 322-327; 1 COMP. GEN. 05; 2 ID. 479; 3 ID. 1006; 4 ID. 177, 522, 858.