B-105016, SEPTEMBER 13, 1951, 31 COMP. GEN. 90

B-105016: Sep 13, 1951

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CONTRACTS - ASSIGNMENTS - SET-OFF RIGHTS PAYMENTS DUE UNDER A GOVERNMENT CONTRACT CONTAINING A "NO SET-OFF" CLAUSE WHICH HAVE BEEN ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940 MAY NOT BE SET-OFF AGAINST AN INDEBTEDNESS OF THE CONTRACTOR TO THE UNITED STATES ARISING INDEPENDENTLY OF SAID CONTRACT. A PARTNERSHIP ENGAGED IN FINANCING SMALL AND UNDERCAPITALIZED BUSINESSES EITHER THROUGH LOANS OR DIRECT PURCHASE AND RESALE THAT LOANED MONEY TO A CONTRACTOR TO ASSIST IN PERFORMANCE OF A GOVERNMENT CONTRACT MAY BE CONSIDERED A PROPER ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 AND THEREFORE ENTITLED TO RECEIVE AMOUNTS TO BECOME DUE UNDER THE CONTRACT WHICH HAVE BEEN ASSIGNED TO SAID PARTNERSHIP.

B-105016, SEPTEMBER 13, 1951, 31 COMP. GEN. 90

CONTRACTS - ASSIGNMENTS - SET-OFF RIGHTS PAYMENTS DUE UNDER A GOVERNMENT CONTRACT CONTAINING A "NO SET-OFF" CLAUSE WHICH HAVE BEEN ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940 MAY NOT BE SET-OFF AGAINST AN INDEBTEDNESS OF THE CONTRACTOR TO THE UNITED STATES ARISING INDEPENDENTLY OF SAID CONTRACT. A PARTNERSHIP ENGAGED IN FINANCING SMALL AND UNDERCAPITALIZED BUSINESSES EITHER THROUGH LOANS OR DIRECT PURCHASE AND RESALE THAT LOANED MONEY TO A CONTRACTOR TO ASSIST IN PERFORMANCE OF A GOVERNMENT CONTRACT MAY BE CONSIDERED A PROPER ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 AND THEREFORE ENTITLED TO RECEIVE AMOUNTS TO BECOME DUE UNDER THE CONTRACT WHICH HAVE BEEN ASSIGNED TO SAID PARTNERSHIP.

COMPTROLLER GENERAL WARREN TO MAJOR A. E. LAFAVER, DEPARTMENT OF THE ARMY, SEPTEMBER 13, 1951:

REFERENCE IS MADE TO YOUR LETTER OF JULY 20, 1951, TRANSMITTING A VOUCHER STATED IN FAVOR OF OAKLEY AND KINGSBERY, ASSIGNEES OF THE G.I. SURPLUS DISTRIBUTING COMPANY, WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO THE PROPRIETY OF PAYMENT ON THE VOUCHER.

THE VOUCHER IS IN THE AMOUNT OF $13,920.88, REPRESENTING THE CONTRACT PRICE FOR CERTAIN QUARTERMASTER SUPPLIES DELIVERED BY THE G.I. SURPLUS DISTRIBUTING COMPANY TO FORT HOOD, TEXAS, UNDER CONTRACT NO. DA 41-093-AIV -294, DATED APRIL 23, 1951. PARAGRAPH 8 OF THE GENERAL PROVISIONS OF THE CONTRACT PERMITTED THE ASSIGNMENT OF MONEYS COMING DUE THEREUNDER PURSUANT TO THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AND ON APRIL 27, 1951, THE G.I. SURPLUS DISTRIBUTING COMPANY ASSIGNED ALL THE CONTRACT PROCEEDS TO THE PARTNERSHIP OF OAKLEY AND KINGSBERY. IT APPEARS THAT A JUDGMENT IN THE AMOUNT OF $19,418.24 SUBSEQUENTLY WAS OBTAINED BY THE UNITED STATES AGAINST THE G.I. SURPLUS DISTRIBUTING COMPANY, REPRESENTING THE BALANCE DUE ON SOME $90,000 WORTH OF SURPLUS PROPERTY PURCHASED ON CREDIT SEVERAL YEARS AGO FROM THE WAR ASSETS ADMINISTRATION.

YOUR DOUBT AS TO THE PROPRIETY OF THE PROPOSED PAYMENT TO THE ASSIGNEE IS TWOFOLD. FIRST, WHETHER THE PARTNERSHIP OF OAKLEY AND KINGSBERY MAY BE CONSIDERED A PROPER ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT, AND SECOND, WHETHER THE INDEBTEDNESS OF THE G.I. SURPLUS DISTRIBUTING COMPANY TO THE UNITED STATES IS ONE "ARISING INDEPENDENTLY" OF THE INSTANT CONTRACT, WHICH WOULD PRECLUDE SET-OFF BY THE GOVERNMENT AGAINST THE ASSIGNED CONTRACT PROCEEDS.

UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, 54 STAT. 1029, 31 U.S.C. 203, MONEYS DUE FROM THE UNITED STATES UNDER A CONTRACT PROVIDING FOR PAYMENTS OF $1,000 OR MORE MAY BE ASSIGNED:

* * * TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION, INCLUDING ANY FEDERAL LENDING AGENCY: PROVIDED,

3. THAT UNLESS OTHERWISE EXPRESSLY PERMITTED BY SUCH CONTRACT ANY SUCH ASSIGNMENT SHALL COVER ALL AMOUNTS PAYABLE UNDER SUCH CONTRACT AND NOT ALREADY PAID, SHALL NOT BE MADE TO MORE THAN ONE PARTY, AND SHALL NOT BE SUBJECT TO FURTHER ASSIGNMENT, EXCEPT THAT ANY SUCH ASSIGNMENT MAY BE MADE TO ONE PARTY AS AGENT OR TRUSTEE FOR TWO OR MORE PARTIES PARTICIPATING IN SUCH FINANCING * * *.

THE ASSIGNMENT OF CLAIMS ACT, 54 STAT. 1030, FURTHER PROVIDES THAT CERTAIN CONTRACTS MAY CONTAIN A "NO SET-OFF" CLAUSE, AS DOES THE CONTRACT HERE INVOLVED, IN WHICH EVENT PAYMENTS TO BE MADE TO AN ASSIGNEE.

* * * SHALL NOT BE SUBJECT TO REDUCTION OR SET-OFF FOR ANY LIABILITY OF ANY NATURE OF THE ASSIGNOR TO THE UNITED STATES OR ANY DEPARTMENT OR AGENCY THEREOF WHICH ARISES INDEPENDENTLY OF SUCH CONTRACT * * *.

THE QUESTION WHETHER THE INDEBTEDNESS OF THE G.I. SURPLUS DISTRIBUTING COMPANY TO THE UNITED STATES IS ONE ARISING INDEPENDENTLY OF THE INSTANT CONTRACT MUST BE ANSWERED IN THE AFFIRMATIVE. EVEN IF IT BE ASSUMED THAT SOME PART OF THE SUPPLIES FURNISHED UNDER THE CONTRACT WERE PURCHASED AS SURPLUS FROM THE WAR ASSETS ADMINISTRATION AND THAT PAYMENT THEREFOR HAS NOT BEEN MADE, IT SEEMS APPARENT THAT THE DEBT AS SUCH IS ENTIRELY INDEPENDENT OF THE CONTRACT HERE INVOLVED, WHICH DID NOT EVEN COME INTO EXISTENCE UNTIL SEVERAL YEARS AFTER THE DEBT AROSE.

WITH RESPECT TO THE QUESTION WHETHER THE PARTNERSHIP OF OAKLEY AND KINGSBERY MAY BE CONSIDERED PROPER ASSIGNEES UNDER THE ASSIGNMENT OF CLAIMS ACT, THERE WERE SUBMITTED LETTERS FROM THREE LEADING BANKS IN AUSTIN, TEXAS, WRITTEN ON BEHALF OF THE ASSIGNEES, WHEREIN IT IS STATED THAT THE FIRM OF OAKLEY AND KINGSBERY HAS BEEN FOR A NUMBER OF YEARS ENGAGED IN FINANCING SMALL AND UNDERCAPITALIZED BUSINESSES, EITHER THROUGH LOANS OR DIRECT PURCHASE AND RESALE. IT APPEARS THAT LOANS TOTALLING IN EXCESS OF $13,000 WERE MADE BY OAKLEY AND KINGSBERY ON THE SECURITY OF THE INSTANT ASSIGNMENT, A LARGE PART OF WHICH WAS USED TO PURCHASE PROPERTY TO BE DELIVERED UNDER THE ASSIGNED CONTRACT. IT IS FURTHER UNDERSTOOD THAT INTEREST AT THE RATE OF SIX PERCENT PER ANNUM IS PAYABLE BY THE CONTRACTOR ON SUCH LOANS. IT APPEARS, THEREFORE, THAT OAKLEY AND KINGSBERY ARE AND HAVE BEEN ENGAGED IN BUSINESS, AT LEAST IN PART, AS A FINANCING INSTITUTION, AND THAT THEY DID LEND MONEY TO THE G.I. SURPLUS DISTRIBUTING COMPANY TO ASSIST THEM IN PERFORMING THEIR CONTRACT WITH THE DEPARTMENT OF THE ARMY.

UNDER THE CIRCUMSTANCES YOU ARE ADVISED THAT THE ASSIGNMENT TO OAKLEY AND KINGSBERY MAY BE RECOGNIZED AS A VALID ASSIGNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT, AND PAYMENT ON THE VOUCHER SUBMITTED IS AUTHORIZED, IF OTHERWISE CORRECT.