B-126630, APR. 27, 1956

B-126630: Apr 27, 1956

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INC.: REFERENCE IS MADE TO YOUR LETTER DATED MARCH 15. THE FACTS OF RECORD WARRANT THE CONCLUSION THAT KOLBE TEXTILE COMPANY AND KOLBE FABRICS ARE SO INTERRELATED AS TO MANAGEMENT. THE ACTION OF OUR OFFICE IN WITHHOLDING THE AMOUNTS OTHERWISE DUE UNDER THE PURCHASE ORDER WAS IN STRICT ACCORDANCE WITH THE STATUTORY DUTY OF THE GENERAL ACCOUNTING OFFICE UNDER THE PROVISIONS OF SECTION 236. WHERE THERE IS INVOLVED ANY CLAIM OR DEMAND WHATEVER BY THE UNITED STATES AGAINST A PERSON WHO HAS A CLAIM OR DEMAND AGAINST THE GOVERNMENT. IS REQUIRED IN THE PROPER DISCHARGE OF ITS DUTY TO SETTLE AND ADJUST SUCH OPPOSING CLAIMS OR DEMANDS. ONLY THE NET BALANCE AS YOU WILL NOTE THERE IS STILL DUE THE UNITED STATES FROM THE KOLBE TEXTILE COMPANY A BALANCE OF $86.39.

B-126630, APR. 27, 1956

TO VICTOR B. HANDAL AND BRO., INC.:

REFERENCE IS MADE TO YOUR LETTER DATED MARCH 15, 1956, REQUESTING RECONSIDERATION OF THE ACTION TAKEN BY OUR OFFICE IN SETTING OFF THE AMOUNT OF $836.27, DUE KOLBE FABRICS UNDER PURCHASE ORDER NO. 1967-5 SCH, AGAINST THE INDEBTEDNESS OF KOLBE TEXTILE COMPANY TO THE UNITED STATES IN THE AMOUNT OF $922.66, REPRESENTING EXCESS COSTS INCURRED BY THE GOVERNMENT DUE TO THE DEFAULT OF THAT COMPANY UNDER CONTRACTS DA 30-280-QM -21196 AND DA-30-280-QM-23093.

THE FACTS OF RECORD WARRANT THE CONCLUSION THAT KOLBE TEXTILE COMPANY AND KOLBE FABRICS ARE SO INTERRELATED AS TO MANAGEMENT, OPERATION, AND PRESUMABLY OWNERSHIP THAT A COURT WOULD CONSIDER THIS A PROPER CASE IN WHICH TO DISREGARD THE FICTION OF SEPARATE CORPORATE ENTITIES. THE ACTION OF OUR OFFICE IN WITHHOLDING THE AMOUNTS OTHERWISE DUE UNDER THE PURCHASE ORDER WAS IN STRICT ACCORDANCE WITH THE STATUTORY DUTY OF THE GENERAL ACCOUNTING OFFICE UNDER THE PROVISIONS OF SECTION 236, REVISED STATUTES AS AMENDED BY SECTION 305 OF THE ACT OF JUNE 10, 1921, 42 STAT. 24, 31 U.S.C. 71. WHERE THERE IS INVOLVED ANY CLAIM OR DEMAND WHATEVER BY THE UNITED STATES AGAINST A PERSON WHO HAS A CLAIM OR DEMAND AGAINST THE GOVERNMENT, THE GENERAL ACCOUNTING OFFICE NOT ONLY HAS THE AUTHORITY, BUT IS REQUIRED IN THE PROPER DISCHARGE OF ITS DUTY TO SETTLE AND ADJUST SUCH OPPOSING CLAIMS OR DEMANDS, TO SET OFF ONE INDEBTEDNESS AGAINST THE OTHER AND TO CERTIFY FOR PAYMENT OR COLLECTION, AS THE CASE MAY BE, ONLY THE NET BALANCE AS YOU WILL NOTE THERE IS STILL DUE THE UNITED STATES FROM THE KOLBE TEXTILE COMPANY A BALANCE OF $86.39.

WITH RESPECT TO YOUR CONTENTION THAT NO SETOFF SHOULD HAVE BEEN MADE BECAUSE THE ORIGINAL BILLS SENT TO SCHENECTADY GENERAL DEPOT WERE ASSIGNED TO YOU, THERE IS NO EVIDENCE OF RECORD THAT THE PAYMENT UNDER THE PURCHASE ORDER WAS ASSIGNED TO YOU WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203. UNDER THIS ACT 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 SETOFF FROM PAYMENTS TO BE MADE TO AN ASSIGNEE BY REASON OF INDEPENDENT DEBTS OWED BY THE CONTRACTOR TO THE GOVERNMENT. NO SUCH SETOFF CLAUSE IS INCLUDED IN THE CONTRACT HERE INVOLVED. MOREOVER, THE ASSIGNMENT OF CLAIMS ACT DOES NOT PROVIDE FOR ASSIGNMENTS OF LESS THAN $1,000. SINCE THERE IS ONLY ONE PURCHASE ORDER HERE INVOLVED, WHICH IS LESS THAN $1,000, IT DOES NOT APPEAR THAT THE AMOUNT THEREOF WOULD HAVE BEEN PROPER FOR ASSIGNMENT UNDER THE ACT. FURTHERMORE, THE EVIDENCE OF RECORD ESTABLISHES THAT YOU ARE NOT A "FINANCING INSTITUTION" WITHIN THE PURVIEW OF THE ACT. THAT PORTION OF THE ACT WHICH DESIGNATES PERMISSIBLE ASSIGNEES AS ANY "BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION, INCLUDING ANY FEDERAL LENDING AGENCY,"EXPRESSES A CLEAR INTENT THAT THE TERM "FINANCING INSTITUTION" WAS NOT MEANT TO INCLUDE EVERY BUSINESS ORGANIZATION THAT MIGHT FIND IT CONVENIENT OR NECESSARY IN THE COURSE OF ITS BUSINESS DEALINGS TO EXTEND CREDIT OR MAKE LOANS TO ITS REGULAR BUSINESS CLIENTS OR CUSTOMERS. RATHER, A "FINANCING INSTITUTION" MIGHT BE DEFINED IN A GENERAL WAY AS AN INDIVIDUAL, PARTNERSHIP, OR CORPORATION DEALING IN MONEY AS DISTINGUISHED FROM OTHER COMMODITIES AS A PRIMARY FUNCTION OF ITS BUSINESS ACTIVITY. SEE MORRIS PLAN CO. OF SAN FRANCISCO V. JOHNSON, 100 F.2D. 493. THUS, IT DOES NOT APPEAR THAT YOU CAN QUALIFY AS A "FINANCING INSTITUTION" WITHIN THE MEANING OF THE ACT. WHILE IT MAY BE, AS STATED IN YOUR LETTER, THAT KOLBE FABRICS REQUESTED THAT PAYMENT FOR THE MATERIAL BE MADE TO YOU, SUCH REQUEST, FOR THE REASONS STATED, CANNOT BE CONSIDERED AN ASSIGNMENT UNDER THE ACT.

THE PURCHASE ORDER WAS ENTERED INTO BETWEEN THE UNITED STATES AND KOLBE FABRICS AND THE FACT THAT YOU WERE THE ORIGINAL PURCHASER AND SHIPPER OF THE MATERIAL AND "AT NO TIME WAS KOLBE FABRICS IN OWNERSHIP OF THIS SHIPMENT," IS OF NO CONSEQUENCE, AS CONTRACTS OR AGREEMENTS TO PERFORM WORK FOR OR TO FURNISH SUPPLIES TO PRIME CONTRACTORS ENGAGED IN THE PERFORMANCE OF CONTRACTS WITH THE GOVERNMENT DO NOT RESULT IN PRIVITY OF CONTRACT BETWEEN THE SUBCONTRACTORS AND THE UNITED STATES. H. HERFURTH, JR., INC. V. UNITED STATES, 389 C.CLS. 122; JOSEPH PETRIN, ET AL. V. UNITED STATES, 90 C.CLS. 670; UNITED STATES V. DRISCOLL, 96 U.S. 421; AND MERITT V. UNITED STATES, 267 U.S. 338.

ACCORDINGLY, THE ACTION TAKEN IN THE MATTER APPEARS TO HAVE BEEN PROPER.