B-116430, DECEMBER 11, 1953, 33 COMP. GEN. 262

B-116430: Dec 11, 1953

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- FOR APPLICATION AGAINST OBLIGATIONS OF THE CONTRACTOR WHICH ARE UNRELATED TO SUCH CONTRACT. 1953: REFERENCE IS MADE TO LETTER DATED JULY 27. OLSON AND OSBORN WERE GRANTED A PERMIT FOR EXCESSIVE WEIGHT USE OF AN OLYMPIC NATIONAL PARK ROAD TO TRANSPORT LOGS BEING CUT FROM NATIONAL FOREST LAND AT A FEE OF THIRTY-TWO CENTS PER THOUSAND BOARD FEET OF LOGS HAULED. 362.01 IS DUE THE UNITED STATES UNDER THE TERMS OF THE PERMIT. OLSON AND OSBORN WERE REQUIRED TO DEPOSIT $500 AS A CASH BOND TO INSURE COMPLIANCE WITH THE TERMS OF THE PERMIT. IT IS PROPOSED TO APPLY THIS AGAINST THE PERMIT FEE. ITEM 7 OF WHICH PROVIDES: THE ESTIMATED VALUE OF TIMBER TO BE REMOVED HEREUNDER IS $5. STATES THAT THE OBLIGATIONS OF OLSON AND OSBORN UNDER THIS CONTRACT ARE UNRELATED TO THOSE UNDER THE PERMIT FIRST MENTIONED.

B-116430, DECEMBER 11, 1953, 33 COMP. GEN. 262

PLEDGES - CONTRACT PERFORMANCE BONDS - APPLICATION AGAINST OBLIGATIONS UNRELATED TO CONTRACT A PLEDGE TO SECURE A SPECIFIC DEBT OR OBLIGATION MAY NOT BE HELD BY THE PLEDGEE AS SECURITY FOR ANY OTHER OBLIGATION, AND THEREFORE THE GOVERNMENT MAY NOT RETAIN A CASH BOND DEPOSITED BY A CONTRACTOR WITH THE NATIONAL PARK SERVICE AS A PLEDGE OR SECURITY FOR PERFORMANCE OF A SPECIFIC LOGGING CONTRACT--- WHICH CONTRACT HAS BEEN SATISFACTORILY FULFILLED--- FOR APPLICATION AGAINST OBLIGATIONS OF THE CONTRACTOR WHICH ARE UNRELATED TO SUCH CONTRACT.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE INTERIOR, DECEMBER 11, 1953:

REFERENCE IS MADE TO LETTER DATED JULY 27, 1953, FROM THE ADMINISTRATIVE ASSISTANT SECRETARY, REQUESTING A DECISION AS TO THE PROPRIETY OF RETAINING CERTAIN MONEY DEPOSITED WITH THE NATIONAL PARK SERVICE BY OLSON AND OSBORN, A PARTNERSHIP ENGAGED IN LOGGING OPERATIONS IN THE STATE OF WASHINGTON.

OLSON AND OSBORN WERE GRANTED A PERMIT FOR EXCESSIVE WEIGHT USE OF AN OLYMPIC NATIONAL PARK ROAD TO TRANSPORT LOGS BEING CUT FROM NATIONAL FOREST LAND AT A FEE OF THIRTY-TWO CENTS PER THOUSAND BOARD FEET OF LOGS HAULED. THE AMOUNT OF $1,362.01 IS DUE THE UNITED STATES UNDER THE TERMS OF THE PERMIT, BUT PAYMENT THEREOF HAS BEEN REFUSED. OLSON AND OSBORN WERE REQUIRED TO DEPOSIT $500 AS A CASH BOND TO INSURE COMPLIANCE WITH THE TERMS OF THE PERMIT, AND IT IS PROPOSED TO APPLY THIS AGAINST THE PERMIT FEE, LEAVING A BALANCE OF $862.01 DUE THE UNITED STATES.

OLSON AND OSBORN ALSO POSTED AN ADDITIONAL $5,000 PURSUANT TO ANOTHER CONTRACT, NO. 14-10-447-39, ITEM 7 OF WHICH PROVIDES:

THE ESTIMATED VALUE OF TIMBER TO BE REMOVED HEREUNDER IS $5,000 AND THE CONTRACTORS AGREE TO POST WITH THE SUPERINTENDENT A CASH BOND IN THIS AMOUNT TO INSURE DELIVERY OF THE RETAINED MATERIAL AND COMPLIANCE WITH ALL OTHER TERMS OF THIS CONTRACT.

THE LETTER OF JULY 27, 1953, STATES THAT THE OBLIGATIONS OF OLSON AND OSBORN UNDER THIS CONTRACT ARE UNRELATED TO THOSE UNDER THE PERMIT FIRST MENTIONED, AND IT IS UNDERSTOOD THAT THESE CONTRACT OBLIGATIONS HAVE BEEN FULFILLED AND RETURN OF THE $5,000 HAS BEEN REQUESTED. IT IS STATED FURTHER IN THE LETTER OF JULY 27, 1953, THAT CONSIDERATION IS BEING GIVEN TO THE INSTITUTION OF SUIT AGAINST OLSON AND OSBORN FOR THE ILLEGAL CONVERSION OF CERTAIN TIMBER CUT FROM THE OLYMPIC NATIONAL PARK BY ONE A. H. VALLIER, AN INSOLVENT TRESPASSER.

THE QUESTIONS RAISED BY THE LETTER OF JULY 27, 1953, ARE WHETHER THE PERMIT INDEBTEDNESS MAY BE LIQUIDATED BY SET-OFF OF $862.01 FROM THE $5,000 CASH BOND, AND WHETHER THERE MAY ALSO BE WITHHELD FROM THAT SUM AN AMOUNT EQUAL TO THE ESTIMATED VALUE OF THE TIMBER ILLEGALLY CONVERTED PENDING A JUDICIAL DETERMINATION OF LIABILITY. IT IS SUGGESTED THAT SUCH ACTION MAY BE IMPROPER BECAUSE OF THE GENERAL RULE THAT SECURITY FOR THE PERFORMANCE OF A PARTICULAR OBLIGATION MAY NOT BE APPLIED BY THE HOLDER TO THE SATISFACTION OF SOME OTHER OBLIGATION.

THERE WOULD, OF COURSE, BE NO DOUBT IN THE MATTER IF THE $5,000 HELD BY THE GOVERNMENT WERE OWNED TO OLSON AND OSBORN FOR GOODS OR SERVICES FURNISHED. TAGGART V. UNITED STATES, 17 C.1CLS. 322; SEE ALSO, COMMENT IN UNITED V. MUNSEY TRUST CO., 332 U.S. 234, AT 240. HOWEVER, THAT IS NOT THE CASE HERE. THE $5,000 WAS DEPOSITED AS A PLEDGE OR SECURITY FOR PERFORMANCE OF THE LOGGING CONTRACT, WHICH HAS BEEN SATISFACTORILY FULFILLED. THE GENERAL RULE OF LAW IS THAT A PLEDGE TO SECURE A SPECIFIC DEBT OR OBLIGATION MAY NOT BE HELD BY THE PLEDGEE AS SECURITY FOR ANY OTHER OBLIGATION, AND A REFUSAL TO RETURN THE PLEDGE AFTER THE OBLIGATION IT SECURES HAS BEEN PERFORMED IS PRIMA FACIE EVIDENCE OF A CONVERSION. SEE BIEBINGER V. CONTINENTAL BANK, 99 U.S. 143; RESTATEMENT OF THE LAW OF SECURITY, SECS. 22 (2) AND 37 (3); 72 C.J.S. PLEDGES SECTION 48. THERE IS ALSO SOME AUTHORITY FOR THE PROPOSITION THAT A FAILURE TO RETURN THE PLEDGE IS ONLY A BREACH OF CONTRACT, AND NOT A BREACH OF TRUST. HENNEQUIN V. CLEWS, 111 U.S. 676, 682. UNDER EITHER CONCEPT, HOWEVER, THE GOVERNMENT HAS NO PRESENT RIGHT OR AUTHORITY TO WITHHOLD THE AMOUNT PLEDGED UNDER THE FACTS SET FORTH IN YOUR LETTER. TRUE, IT HAS THE POWER TO DO SO BY VIRTUE OF ITS POSSESSION OF THE MONEY, BUT THE GOVERNMENT WHOULD BE THE LAST TO RENEGE ON ITS LEGAL OBLIGATIONS IN SUCH MATTERS. ACCORDINGLY, PAYMENT OF SAID SUM OF $5,000 TO THE CONTRACTOR SHOULD BE EFFECTED WITHOUT DELAY. THE $500 CASH BOND, OF COURSE, CAN AND PROPERLY SHOULD BE APPLIED IN PARTIAL LIQUIDATION OF THE PERMIT INDEBTEDNESS.