B-124314, AUGUST 25, 1955, 35 COMP. GEN. 104

B-124314: Aug 25, 1955

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CLAIMS - ASSIGNMENTS - CONTRACTS - CONFLICTING CLAIMS AN ASSIGNMENT OF THE PROCEEDS OF A GOVERNMENT CONTRACT MADE TO A BANK AS SECURITY FOR A LOAN WHICH WAS GUARANTEED AND CONTROLLED BY THE CONTRACTOR'S SURETY IS A VALID ASSIGNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 WHICH DOES NOT FORBID AN ASSIGNEE FROM REQUIRING ADDITIONAL SECURITY. AMOUNTS DUE UNDER A GOVERNMENT CONTRACT WHICH CONTAINS A "NO SET OFF" CLAUSE AND WHICH WAS ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940 TO A BANK FOR A LOAN BY A CONTRACTOR WHO AT THE TIME OF THE ASSIGNMENT OWED FEDERAL WITHHOLDING AND SOCIAL SECURITY TAXES ARE FOR PAYMENT TO THE ASSIGNEE BANK PROVIDED THAT AFTER THE LOAN INDEBTEDNESS IS LIQUIDATED THE GOVERNMENT MAY SATISFY THE CONTRACTOR'S TAX INDEBTEDNESS FROM ANY ADDITIONAL AMOUNTS DUE.

B-124314, AUGUST 25, 1955, 35 COMP. GEN. 104

CLAIMS - ASSIGNMENTS - CONTRACTS - CONFLICTING CLAIMS AN ASSIGNMENT OF THE PROCEEDS OF A GOVERNMENT CONTRACT MADE TO A BANK AS SECURITY FOR A LOAN WHICH WAS GUARANTEED AND CONTROLLED BY THE CONTRACTOR'S SURETY IS A VALID ASSIGNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 WHICH DOES NOT FORBID AN ASSIGNEE FROM REQUIRING ADDITIONAL SECURITY, NOR PROHIBIT ACCEPTANCE OF SUCH SECURITY FROM THE CONTRACTOR'S SURETY. AMOUNTS DUE UNDER A GOVERNMENT CONTRACT WHICH CONTAINS A "NO SET OFF" CLAUSE AND WHICH WAS ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940 TO A BANK FOR A LOAN BY A CONTRACTOR WHO AT THE TIME OF THE ASSIGNMENT OWED FEDERAL WITHHOLDING AND SOCIAL SECURITY TAXES ARE FOR PAYMENT TO THE ASSIGNEE BANK PROVIDED THAT AFTER THE LOAN INDEBTEDNESS IS LIQUIDATED THE GOVERNMENT MAY SATISFY THE CONTRACTOR'S TAX INDEBTEDNESS FROM ANY ADDITIONAL AMOUNTS DUE. AN INSTRUMENT OF ASSIGNMENT WHICH AUTHORIZES THE ASSIGNEE BANK TO SETTLE, ADJUST AND COMPROMISE CLAIMS IS NOT AUTHORIZED BY THE ASSIGNMENT OF CLAIMS ACT OF 1940 AND NEED NOT BE RECOGNIZED BY THE UNITED STATES.

TO THE SECRETARY OF THE NAVY, AUGUST 25, 1955:

BY LETTER DATED JUNE 14, 1955, THE CHIEF OF THE BUREAU OF YARDS AND DOCKS REFERRED TO US FOR DIRECT SETTLEMENT OR OTHER APPROPRIATE ACTION CERTAIN CONFLICTING CLAIMS UNDER CONTRACT NOY 27415. BECAUSE OF THE QUESTIONS INVOLVED IN MAKING SETTLEMENT OF THE CLAIMS AND THE NECESSITY FOR FURTHER ADMINISTRATIVE ACTION TO DETERMINE THE FULL AMOUNTS PAYABLE, IT IS DEEMED PREFERABLE TO ADVISE YOU OF OUR VIEWS AS TO THE RIGHTS OF THE ADVERSARY PARTIES, ACTUAL SETTLEMENT TO BE MADE BY THE DEPARTMENT OF THE NAVY IF POSSIBLE.

CONTRACT NOY 27415 WAS AWARDED TO HARRY R. BYERS, INC., ON JULY 28, 1951, FOR THE CONSTRUCTION OF A STEAM ELECTRIC GENERATING PLANT BUILDING AT THE NAVAL AIR STATION, PENSACOLA, FLORIDA, AND THE INSTALLATION OF EQUIPMENT THEREFOR AT A PRICE OF $997,801, SUBSEQUENTLY INCREASED TO $1,304,192 BY CHANGE ORDERS. THE EQUIPMENT WAS TO BE FURNISHED BY OTHER CONTRACTORS, TEN IN ALL, AT A TOTAL COST OF ABOUT $2,200,000. WORK UNDER CONTRACT NOY 27415 WAS SCHEDULED FOR COMPLETION IN DECEMBER 1952 BUT THE CONTRACT TIME WAS EXTENDED AND THE WORK ACTUALLY WAS COMPLETED AND ACCEPTED IN JANUARY 1955. APPROXIMATELY $180,000 OF THE CONTRACT PRICE REMAINS UNPAID, AND THERE ARE UNSETTLED CLAIMS FOR ADDITIONAL COMPENSATION IN EXCESS OF $1,000,000.

FOUR PARTIES HAVE AN INTEREST IN THE DISPOSITION OF MONEYS FOUND PAYABLE IN CONNECTION WITH THE CONTRACT, THREE OF WHOM HAVE PRESENTED CLAIMS. THE INTERESTED PARTIES ARE (1) THE CONTRACTOR, WHO IS CLAIMING THE CONTRACT BALANCE PLUS AN ADDITIONAL $1,347,473.17, (2) THE ASSIGNEE UNDER THE CONTRACT, THE UNION TRUST COMPANY OF MARYLAND, TO WHOM THE CONTRACTOR OWES $862,007.43 AND WHO IS CLAIMING THE EXCLUSIVE RIGHT TO PROSECUTE ALL CLAIMS AND TO RECEIVE ALL AMOUNTS FOUND PAYABLE IN CONNECTION WITH THE CONTRACT, (3) THE INTERNAL REVENUE SERVICE, WHICH HAS SERVED NOTICE OF LEVY AGAINST ANY AMOUNTS DUE THE CONTRACTOR TO SATISFY HIS INDEBTEDNESS OF $93,133.10 FOR WITHHOLDING TAXES AND FEDERAL INSURANCE CONTRIBUTIONS, AND (4) THE UNITED STATES FIDELITY AND GUARANTY COMPANY, THE SURETY ON THE CONTRACT PERFORMANCE AND PAYMENT BONDS IN THE APPROXIMATE AMOUNTS OF $1,000,000 AND $500,000 RESPECTIVELY, WHICH HAS GUARANTEED THE ASSIGNEE BANK'S LOANS BUT HAS FILED NO CLAIM IN ITS OWN BEHALF.

THE CONTRACTOR RAN INTO DIFFICULTIES DURING PERFORMANCE OF THE CONTRACT AND REACHED THE POINT IN 1953 WHERE IT COULD NOT HAVE COMPLETED THE WORK WITHOUT FINANCIAL ASSISTANCE. IN SEPTEMBER 1953 THE CONTRACTOR ATTEMPTED TO SECURE FROM A BANK A LOAN OF $350,000 TO COMPLETE THE WORK, OFFERING AS SECURITY AN ASSIGNMENT OF THE REMAINING CONTRACT PROCEEDS OF ABOUT $450,000. THE BANK REFUSED TO MAKE THE LOAN WITHOUT ADDITIONAL SECURITY. ON OCTOBER 9, 1953, THE CONTRACTOR AND REPRESENTATIVES OF THE SURETY MET WITH REPRESENTATIVES OF ANOTHER BANK, THE UNION TRUST COMPANY OF MARYLAND, WHICH AGREED TO LEND THE CONTRACTOR $200,000 UNDER CERTAIN CONDITIONS, AS SET FORTH IN A LETTER DATED OCTOBER 9, 1953, FROM THE SURETY TO THE CONTRACTOR. THESE CONDITIONS WERE THAT THE SURETY WOULD GUARANTEE THE LOANS TO BE MADE BY THE BANK TO THE CONTRACTOR; THE CONTRACTOR WOULD EXECUTE NOTES FOR THE LOANS AND AN ASSIGNMENT OF THE PROCEEDS OF CONTRACT NOY 27415; EXPENDITURES BY THE CONTRACTOR FROM THE LOAN PROCEEDS WOULD BE SUBJECT TO APPROVAL BY THE SURETY BY CO-SIGNING OF CHECKS; AND LOAN PROCEEDS WOULD BE USED BY THE CONTRACTOR ONLY FOR PAYMENT OF LIABILITIES COVERED BY THE SURETY'S BONDS UNDER THE CONTRACT. UNDER THESE CONDITIONS THE CONTRACTOR EXECUTED AN ASSIGNMENT TO THE BANK ON OCTOBER 9, 1953, AND OBTAINED A LOAN OF $150,000. SUBSEQUENT LOANS TO A TOTAL OF $1,120,000 WERE MADE BEFORE THE CONTRACT WAS COMPLETED, ALTHOUGH THE UNPAID LOAN BALANCE NEVER WAS AS LARGE AS THE PENALTY OF THE SURETY'S PERFORMANCE BOND. AFTER CREDIT FOR CONTRACT PROGRESS PAYMENTS THE CONTRACTOR STILL OWES THE BANK OVER $862,000, AND APPARENTLY ALSO OWES CONTRACT LABOR AND MATERIAL BILLS IN EXCESS OF $250,000.

AT THE TIME OF THE ASSIGNMENT TO THE BANK THE CONTRACTOR OWED SOME $30,547 IN FEDERAL WITHHOLDING AND SOCIAL SECURITY TAXES. SINCE THAT TIME SIMILAR ADDITIONAL TAXES ON THE CONTRACT PAYROLLS HAVE BECOME DUE, AND THE INTERNAL REVENUE SERVICE HAS SERVED A NOTICE OF LEVY ON THE NAVY IN THE AMOUNT OF $93,133.10, INCLUDING PENALTIES AND INTEREST. ATTEMPTS HAVE BEEN MADE BY THE CONTRACTOR TO PAY AT LEAST A PART OF THESE DELINQUENT TAXES FROM THE PROCEEDS OF LOANS FROM THE ASSIGNEE BANK, BUT THE SURETY HAS REFUSED TO COUNTERSIGN CHECKS FOR THIS PURPOSE.

AS STATED ABOVE, THE CONTRACTOR HAS FILED CLAIMS OF $1,347,473.17 FOR ADDITIONAL COMPENSATION IN CONNECTION WITH THE CONTRACT WORK. THE ASSIGNEE BANK HAS SERVED NOTICE THAT IT ASSERTS THE RIGHT UNDER THE TERMS OF ITS ASSIGNMENT TO PREPARE, PRESENT AND PROSECUTE ALL CLAIMS AND REQUESTS FOR CHANGE ORDERS OR RELIEF OF ANY KIND ARISING UNDER CONTRACT NOY 27415. THE CONTRACTOR HAS DENIED THAT THE ASSIGNEE HAS ANY SUCH RIGHTS AND HAS ATTEMPTED TO CANCEL OR REVOKE THE ASSIGNMENT. THE CHIEF OF THE BUREAU OF YARDS AND DOCKS REQUESTED ADVICE AS TO THE RESPECTIVE RIGHTS OF THE CONTRACTOR AND THE ASSIGNEE TO PROSECUTE CLAIMS FOR ADDITIONAL COMPENSATION AND AS TO THE RESPECTIVE RIGHTS OF THE CONTRACTOR, THE INTERNAL REVENUE SERVICE TO ANY MONEYS THAT MAY BE FOUND PAYABLE UNDER THE CONTRACT.

WITH RESPECT TO THE ATTEMPTED REVOCATION OF THE ASSIGNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT SUCH AN INSTRUMENT IS NOT A MERE POWER OF ATTORNEY, BUT THE TRANSFER OF AN INTEREST WHICH CAN NO MORE BE REVOKED THAN ANY OTHER CONTRACT. CORBIN ON CONTRACTS, SEC. 921; WILLISTON ON CONTRACTS ( REV. USED.), SECS. 409, 410.

SO FAR AS CONCERNS THE AMOUNT OF $150,000 ADMITTEDLY DUE UNDER THE CONTRACT, THE DISPUTE BETWEEN THE CONTRACTOR AND THE ASSIGNEE OVER THE RIGHT TO PROSECUTE CLAIMS MAY BE IGNORED. THE QUESTION IS SIMPLY WHETHER THIS AMOUNT SHALL BE PAID TO THE ASSIGNEE OR TO THE CONTRACTOR WITH OR WITHOUT DEDUCTION OF THE TAX CLAIM. UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, CONTRACTORS ARE PERMITTED TO ASSIGN TO A BANK OR OTHER FINANCING INSTITUTION "THE MONEYS DUE OR TO BECOME DUE" UNDER A GOVERNMENT CONTRACT. IN THE CASE OF CERTAIN CONTRACTS A CLAUSE MAY BE INCLUDED PROHIBITING REDUCTION OR SET-OFF FROM PAYMENTS TO BE MADE TO AN ASSIGNEE BY REASON OF INDEPENDENT DEBTS OWED BY THE CONTRACTOR TO THE GOVERNMENT. SUCH A "NO SET-OFF" CLAUSE IS INCLUDED IN CONTRACT NOY 27415. IT WAS HELD IN THE CASE OF CENTRAL BANK V. UNITED STATES, 345 U.S. 639, DECIDED JUNE 1, 1953, THAT A CONTRACTOR'S OBLIGATION TO PAY FEDERAL WITHHOLDING TAXES ON PAYROLLS UNDER A GOVERNMENT CONTRACT IS INDEPENDENT OF THE CONTRACT. IT IS CONCEDED BY THE INTERNAL REVENUE SERVICE THAT IF THE ASSIGNMENT TO THE UNION TRUST COMPANY IS VALID THE TAX CLAIM CANNOT BE DEDUCTED FROM THE $150,000 CONTRACT PAYMENT TO THE PREJUDICE OF THE BANK. HOWEVER, THE DISTRICT DIRECTOR OF INTERNAL REVENUE QUESTIONS THE VALIDITY OF THE ASSIGNMENT ON THE BASIS THAT IT WAS ARRANGED BY THE SURETY FOR ITS OWN PROTECTION IN CIRCUMVENTION OF THE ASSIGNMENT OF CLAIMS ACT. THE ASSIGNMENT OF CLAIMS ACT DOES NOT FORBID AN ASSIGNEE FROM REQUIRING SECURITY IN ADDITION TO THE ASSIGNMENT OF THE CONTRACT PROCEEDS NOR DOES IT PROHIBIT THE ACCEPTANCE OF SUCH SECURITY FROM THE CONTRACT SURETY. UNDER ALL THE CIRCUMSTANCES OF THE CASE, IT IS OUR OPINION THAT THE ASSIGNMENT TO THE BANK IS NOT INVALIDATED BY THE SURETY'S GUARANTY OF AND CONTROL OVER THE LOANS MADE BY THE BANK.

IT HAS BEEN SUGGESTED BY THE CONTRACTOR THAT THE UNPAID LABORERS AND MATERIALMEN, WHOSE CLAIMS ARE SAID TO TOTAL OVER $250,000, HAVE AN EQUITABLE RIGHT TO PAYMENT FROM ANY AMOUNTS DUE UNDER THE CONTRACT WHICH IS SUPERIOR TO THE ASSIGNEE'S RIGHTS UNDER THE ASSIGNMENT. THE CONTRACTOR HAS THEREFORE REQUESTED THAT PAYMENT OF THE $150,000 NOW DUE BE MADE BY THE NAVY DEPARTMENT DIRECTLY TO SUCH UNPAID LABORERS AND MATERIALMEN. SUPPORT OF THIS POSITION THE CONTRACTOR CITES THE CASES OF HADDEN V. UNITED STATES AND NATIONAL SURETY CORPORATION V. UNITED STATES, BOTH DECIDED BY THE COURT OF CLAIMS ON JULY 12, 1955. SUFFICE IT TO SAY THAT THE DECISION IN THE HADDEN CASE IS MERELY INTERLOCUTORY AND NOT A FINAL HOLDING. THE STATEMENTS IN THE NATIONAL SURETY CORPORATION CASE WHICH SEEM TO SUPPORT THE CONTRACTOR'S POSITION ARE NOT A SQUARE HOLDING ON THE POINT, SINCE NO CLAIMS OF LABORERS OR MATERIALMEN WERE INVOLVED IN THE CASE. CONSEQUENTLY, WE FEEL THAT THESE DECISIONS DO NOT AUTHORIZE THE PAYMENT SUGGESTED.

THE DISPUTE BETWEEN THE CONTRACTOR AND THE ASSIGNEE AS TO WHICH HAS THE RIGHT TO PROSECUTE CLAIMS FOR ADDITIONAL COMPENSATION UNDER THE CONTRACT RAISES SEVERAL QUESTIONS. THE INSTRUMENT OF ASSIGNMENT EXECUTED BY THE CONTRACTOR ON OCTOBER 9, 1953, ASSIGNS TO THE BANK "ALL CLAIMS FOR MONIES DUE OR TO BECOME DUE" UNDER CONTRACT NOY 27415, AND SPECIFICALLY GIVES THE BANK AUTHORITY.

TO SETTLE, ADJUST, AND COMPROMISE ALL PRESENT AND FUTURE CLAIMS FOR OR ARISING OUT OF ANY OF THE PAYMENTS DUE OR TO BECOME DUE UNDER THE SAID CONTRACT, AND TO INSTITUTE AND PROSECUTE IN ITS OWN NAME OR THAT OF ASSIGNOR ANY SUIT, ACTION OR PROCEEDING FOR THE ENFORCEMENT OF SUCH CLAIMS. AS BETWEEN THE CONTRACTOR AND THE BANK, THE FOREGOING LANGUAGE SUPPORTS THE BANK'S POSITION. SEE COMMERCIAL NATIONAL BANK OF SAN ANTONIO V. CONTINENTAL BANK AND TRUST CO. ( CCA 5, 1937), 88 F.2D 160. THE BANK CONTENDS THAT IT HAS THE RIGHT TO PROSECUTE CLAIMS EVEN FOR AMOUNTS IN EXCESS OF THE CONTRACTOR'S INDEBTEDNESS TO IT, AND THAT IT IS NO BUSINESS OF THE GOVERNMENT THAT THE BANK MAY RECOVER A SURPLUS WHICH IT WILL HOLD IN TRUST FOR THE CONTRACTOR. LANGUAGE TO THE EFFECT THAT IT DOES NOT CONCERN THE DEBTOR WHETHER AN ASSIGNEE MAY HAVE TO ACCOUNT TO HIS ASSIGNOR FOR A BALANCE MAY BE FOUND IN SOME CASES, INCLUDING LEAVENWORTH STATE BANK V. WENATCHEE VALLEY FRUIT EXCHANGE, 204 P. 8, 118 WASH. 366, CITED BY THE BANK. AND IN COCONUT GROVE EXCHANGE BANK V. NEW AMSTERDAM CASUALTY CO. ( CCA 5, 1945), 149 F.2D 73, 77, THE STATEMENT IS FOUND THAT IT IS IMMATERIAL WHETHER AN ASSIGNEE BANK HAD RECEIVED PAYMENTS IN EXCESS OF THE AMOUNT DUE IT FROM THE CONTRACTOR.

UNDER CERTAIN CIRCUMSTANCES, AND WHERE THE DEBTOR IS MERELY A STAKEHOLDER, IT MAY BE TRUE THAT HE HAS NO CONCERN WITH THE STATE OF THE ACCOUNT BETWEEN ASSIGNOR AND ASSIGNEE. IN NONE OF THE AUTHORITIES CITED IN SUPPORT OF THE BANK'S POSITION ON THIS POINT, HOWEVER, WAS THERE INVOLVED A SITUATION WHERE THE ASSIGNOR WAS INDEBTED TO THE PRINCIPAL DEBTOR. IT MAY BE NOTED, TOO, THAT IN THE COCONUT GROVE CASE THE ASSIGNEE BANK CLAIMED ONLY THE AMOUNT OWED TO IT, AND DEPOSITED AN EXCESS RECEIVED BY IT INTO COURT. AS STATED BY THE BANK IN THE PRESENT CASE, THERE IS NO DOUBT THAT AN ASSIGNEE WHO TAKES AN ASSIGNMENT AS SECURITY FOR LOANS TO THE ASSIGNOR MUST ACCOUNT TO THE ASSIGNEE AS A CONSTRUCTIVE TRUSTEE FOR ALL PROCEEDS COLLECTED IN EXCESS OF THE ASSIGNOR'S INDEBTEDNESS. SEE, FOR EXAMPLE, THE LEAVENWORTH STATE BANK CASE, CITED ABOVE. SEE, ALSO, WILLISTON ON CONTRACTS, REV. USED., SECTION 441. BUT, IF THE BENEFICIARY OF A TRUST IS INDEBTED IN A GREATER AMOUNT TO THE SAME PERSON FROM WHOM MONEY IS DUE TO THE TRUSTEE, THE TRUSTEE MAY NOT COLLECT MORE THAN THE DIFFERENCE BETWEEN THE DEBTS. AS WAS STATED BY THE SUPREME COURT IN THE CASE OF STONE V. WHITE, 301 U.S. 532, 537:

IN SUCH CASES EQUITY DOES NOT COUNTENANCE THE IDLE CEREMONY OF ALLOWING RECOVERY BY THE TRUSTEE ONLY TO COMPEL HIM TO ACCOUNT TO THE BENEFICIARY WHO WOULD THEN HAVE TO PAY THE PROCEEDS TO THE ORIGINAL DEFENDANT. AVOID THIS CIRCUITY OF ACTION A COURT OF EQUITY TAKES COGNIZANCE OF THE IDENTITY IN INTEREST OF TRUSTEE AND CESTUI QUE TRUST.

CF. RHODE ISLAND DISCOUNT CO. V. UNITED STATES, 118 C.1CLS. 262, 287- 288. THE FOREGOING PRINCIPLE AS APPLIED TO THE FACTS OF THE PRESENT CASE MEANS SIMPLY THAT IF THE AMOUNT EVENTUALLY DETERMINED TO BE DUE UNDER CONTRACT NOY 27415 IS IN EXCESS OF THE AMOUNT OWED BY THE CONTRACTOR TO THE ASSIGNEE BANK, SUCH EXCESS MAY BE USED BY THE GOVERNMENT TO SATISFY THE CONTRACTOR'S TAX INDEBTEDNESS. THE "NO SET OFF" PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940 ARE FOR THE PROTECTION OF THE ASSIGNEE AND CANNOT, IN OUR OPINION, BE USED TO IMMUNIZE CONTRACT PROCEEDS AGAINST COLLECTION OF THE CONTRACTOR'S JUST DEBTS TO THE GOVERNMENT THROUGH THE DEVICE OF AN ASSIGNMENT MERELY FOR COLLECTION.

WHAT THEN OF THE RIGHT GIVEN THE BANK BY THE ASSIGNMENT TO PROSECUTE ANY PROCEEDING FOR THE ENFORCEMENT OF

* * * ALL PRESENT AND FUTURE CLAIMS FOR OR ARISING OUT OF ANY OF THE PAYMENTS DUE OR TO BECOME DUE UNDER THE SAID CONTRACT, AND ITS RIGHT TO SETTLE, ADJUST, OR COMPROMISE SUCH CLAIMS? IT IS OUR OPINION THAT THE ASSIGNMENT OF SUCH RIGHTS TO A FINANCING INSTITUTION IS NOT AUTHORIZED BY THE ASSIGNMENT OF CLAIMS ACT OF 1940, AND NEED NOT BE RECOGNIZED BY THE UNITED STATES. AS WAS SAID IN MCKENZIE V. IRVING TRUST CO., 323 U.S. 365, 369, * * * THE PROVISIONS OF THE STATUTE GOVERNING ASSIGNMENTS OF CLAIMS AGAINST THE GOVERNMENT ARE FOR THE PROTECTION OF THE GOVERNMENT AND NOT FOR THE REGULATION OF THE EQUITIES OF THE CLAIMANTS AS BETWEEN THEMSELVES. MARTIN V. NATIONAL SURETY CO., 300 U.S. 588, 594-595. IN THE PRESENT CASE, THE BANK HAS CONSISTENTLY SPOKEN OF THE ASSIGNMENT OF CLAIMS ACT AS PERMITTING THE ASSIGNMENT OF CLAIMS AGAINST THE GOVERNMENT. THE STATUTE DOES NOT USE THIS LANGUAGE. THE ANTI-ASSIGNMENT ACT, 31 U.S.C. 203, STATES THAT

ALL TRANSFERS AND ASSIGNMENTS MADE OF ANY CLAIM UPON THE UNITED STATES * * * SHALL BE ABSOLUTELY NULL AND VOID * * *. ( ITALICS SUPPLIED.) EXCEPTION CONTAINED IN THE ORIGINAL STATUTE PERMITTED ASSIGNMENTS "AFTER THE ALLOWANCE" OF A CLAIM AND "THE ASCERTAINMENT OF THE AMOUNT DUE.' THE FURTHER EXCEPTION WHICH WAS MADE BY THE ASSIGNMENT OF CLAIMS ACT OF 1940 PERMITTED THE ASSIGNMENT OF "MONEYS DUE OR TO BECOME DUE" UNDER A GOVERNMENT CONTRACT, NOT THE ASSIGNMENT OF ANY CLAIMS WHICH MIGHT ARISE UNDER SUCH A CONTRACT. THIS, IN OUR OPINION, IS A STATUTORY LIMITATION UPON THE CHARACTER OF THE RIGHTS AND THE EXTENT OF THE POWERS PERMITTED TO BE CONFERRED BY THE ASSIGNMENT. THE ACT PLACED OTHER LIMITATIONS UPON THE RIGHT TO MAKE ASSIGNMENTS. FOR EXAMPLE, ASSIGNMENTS MAY BE MADE ONLY TO FINANCING INSTITUTIONS, TO ONE ASSIGNEE ONLY, AND THEN ONLY IF THE CONTRACT CALLS FOR PAYMENTS AGGREGATING $1,000 OR MORE.

IT IS REALIZED THAT THE PERMISSION GRANTED BY THE 1940 ACT TO MAKE ASSIGNMENTS, EVEN UNDER THE LIMITATIONS PRESCRIBED, MAY CREATE SOME ADMINISTRATIVE PROBLEMS WHICH OTHERWISE WOULD NOT ARISE. CF. UNITED STATES V. AETNA SURETY CO., 338 U.S. 366, 375-376. HOWEVER, WE DO NOT BELIEVE THAT THE ACT REQUIRES THE GOVERNMENT TO DEAL WITH A STRANGER TO A CONTRACT DURING THE COURSE OF REGULAR ADMINISTRATIVE PROCEDURES ESTABLISHED FOR THE PURPOSE OF DETERMINING THE AMOUNT OF MONEY DUE OR TO BECOME DUE UNDER THE CONTRACT, AT LEAST NOT WHEN THE CONTRACTOR IS WILLING AND ABLE TO ACT IN THE MATTER. THE GOVERNMENT WOULD BE SUBJECT TO CONSIDERABLE RISK IF IT SHOULD ATTEMPT TO SETTLE A DISPUTE BETWEEN THE CONTRACTOR AND THE ASSIGNEE OVER THE RIGHT TO PROSECUTE CLAIMS UNDER A CONTRACT. IT IS NOTED THAT IN THE CASE OF COMMERCIAL NATIONAL BANK OF SAN ANTONIO V. CONTINENTAL BANK AND TRUST CO., CITED BY THE BANK, THE DEBTOR REFUSED TO ACCEPT A RELEASE FROM THE ASSIGNEE ALONE EVEN THOUGH THE ASSIGNOR HAD GIVEN THE ASSIGNEE THE RIGHT TO SETTLE CLAIMS.

IN THE PRESENT CASE, NO OBJECTION IS PERCEIVED TO THE SUGGESTION MADE IN THE LETTER OF JUNE 14, 1955, THAT THE NAVY DEPARTMENT HEAR AND DETERMINE THE CLAIMS ASSERTED BY BOTH PARTIES. IT IS UNDERSTOOD THAT AGREEMENT MAY BE REACHED BETWEEN THE CONTRACTOR AND THE BANK TO PARTICIPATE JOINTLY IN FURTHER PROCEEDINGS BEFORE THE NAVY DEPARTMENT. YOU ARE ADVISED, THEREFORE, THAT PAYMENT OF THE BALANCE OF $150,000 PRESENTLY DUE SHOULD BE MADE TO THE ASSIGNEE BANK. ADDITIONAL AMOUNTS WHICH MAY BE DETERMINED TO BE DUE SHOULD ALSO BE PAID TO THE BANK. HOWEVER, THE CONTRACTOR'S TAX INDEBTEDNESS SHOULD BE SATISFIED FROM ANY AMOUNTS FOUND DUE IN EXCESS OF ITS INDEBTEDNESS TO THE BANK.