B-129134, MAR. 8, 1957

B-129134: Mar 8, 1957

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INC.: WE HAVE YOUR LETTER OF JANUARY 29. YOUR CLAIM IS PREDICATED UPON THE ALLEGATION THAT YOU PURCHASED THE INVOICES FROM THE CONTRACTOR EXISTING AT THE TIME OF FILING OF THE BANKRUPTCY PETITION. IT IS YOUR CONTENTION THAT "WHERE THERE IS AN OUTRIGHT PURCHASE OF AN ACCOUNTS RECEIVABLE AND THE CORPORATION RECEIVING THE MONIES FROM THE SALE OF THE ACCOUNT HAVE ALREADY BENEFITED BY THAT SALE AND HAVE RECEIVED THAT MONEY. WHILE THE TRANSFER TO YOUR CORPORATION FROM THE CONTRACTOR OF THE INVOICES ISSUED UNDER THE CONTRACT MAY HAVE BEEN ENTIRELY VALID AS AGAINST THE GENERAL CREDITORS OF THE BANKRUPT'S ESTATE. IS THE APPLICATION OF THE "NO SET-OFF" PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

B-129134, MAR. 8, 1957

TO MR. J. G. MOSER, PRESIDENT, CALIFORNIA EQUITIES, INC.:

WE HAVE YOUR LETTER OF JANUARY 29, 1957, PROTESTING THE ACTION TAKEN BY THE CLAIMS DIVISION OF OUR OFFICE IN REFUSING PAYMENT TO YOU OF THE SUM OF $3,251.08, OTHERWISE DUE LELAND CAMERON, DOING BUSINESS AS ALLIED AIRCRAFT COMPANY, NOW IN BANKRUPTCY, FOR A QUANTITY OF HEADBANDS FURNISHED THE DEPARTMENT OF THE AIR FORCE UNDER CONTRACT NO. AF 33/600/21318. YOUR CLAIM IS PREDICATED UPON THE ALLEGATION THAT YOU PURCHASED THE INVOICES FROM THE CONTRACTOR EXISTING AT THE TIME OF FILING OF THE BANKRUPTCY PETITION. IT IS YOUR CONTENTION THAT "WHERE THERE IS AN OUTRIGHT PURCHASE OF AN ACCOUNTS RECEIVABLE AND THE CORPORATION RECEIVING THE MONIES FROM THE SALE OF THE ACCOUNT HAVE ALREADY BENEFITED BY THAT SALE AND HAVE RECEIVED THAT MONEY, THEN THERE CAN BE NO OFFSET.'

WHILE THE TRANSFER TO YOUR CORPORATION FROM THE CONTRACTOR OF THE INVOICES ISSUED UNDER THE CONTRACT MAY HAVE BEEN ENTIRELY VALID AS AGAINST THE GENERAL CREDITORS OF THE BANKRUPT'S ESTATE, SUCH A TRANSFER DOES NOT ORDINARILY OPERATE TO CUT OFF OR DEFEAT ANY EQUITIES OF A DEBTOR AGAINST THE CREDITOR-ASSIGNOR. AN EXCEPTION, IN PROPER CASES, IS THE APPLICATION OF THE "NO SET-OFF" PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203. THE BASIC ACT SET FORTH IN SECTION 3477, REVISED STATUTES, PROVIDES THAT ALL TRANSFERS AND ASSIGNMENTS OF ANY CLAIMS AGAINST THE UNITED STATES SHALL BE ABSOLUTELY NULL AND VOID UNLESS MADE UNDER CERTAIN FORMALITIES AFTER THE ALLOWANCE OF SUCH CLAIM, THE ASCERTAINMENT OF THE AMOUNT DUE, AND THE ISSUANCE OF A WARRANT FOR THE PAYMENT THEREOF. SINCE YOUR ADVANCE OF FUNDS TO THE CONTRACTOR IN EXCHANGE FOR THE INVOICES FAILED TO COMPLY WITH THOSE REQUIREMENTS, NO STATUTORY RIGHTS THEREUNDER WERE CREATED.

THE CITED AMENDMENT OT THE ACT RELAXING THE PROHIBITION AGAINST ASSIGNMENT OF CLAIMS AGAINST THE GOVERNMENT PROVIDES THAT UNDER CERTAIN CONTRACTS MONEYS DUE FROM THE UNITED STATES MAY BE ASSIGNED TO A BANK, TRUST COMPANY OR OTHER FINANCING INSTITUTION, UPON COMPLIANCE WITH THE CONDITIONS AND REQUIREMENTS ENUMERATED IN THE AMENDMENT. THE ADMINISTRATIVE OFFICE HAS ADVISED THAT ITS RECORDS DO NOT SHOW THAT ANY ATTEMPT WAS MADE BY YOU AND THE CONTRACTOR TO COMPLY WITH THOSE REQUIREMENTS, AND THEREFORE, THE AMENDATORY PROVISIONS OF THAT ACT ARE NOT FOR APPLICATION IN THIS CASE.

SINCE THE MATTER DOES NOT COME WITHIN THE PURVIEW OF THE EXCEPTIONS TO THE ASSIGNMENT OF CLAIMS ACT, AS AMENDED, THERE REMAINS ONLY THE QUESTION OF THE GOVERNMENT'S RIGHT TO APPLY THE AMOUNT INVOLVED IN PARTIAL LIQUIDATION OF THE FEDERAL TAX OBLIGATIONS OF THE CONTRACTOR, REPORTED BY THE BUREAU OF INTERNAL REVENUE TO BE IN EXCESS OF $40,000. IT IS APPARENT THAT UNDER THE DOCTRINE OF SUBROGATION, OR OTHERWISE, YOUR CORPORATION ACQUIRED NO GREATER RIGHT TO RECEIVE PAYMENT OF THE INVOICES THAN THAT VESTED IN THE CONTRACTOR AT THE TIME OF TRANSFER OF THE ACCOUNTS. ADDITION TO THE STATUTORY PRIORITY ACCORDED GOVERNMENT CLAIMS INVOLVING A BANKRUPT DEBTOR (SEE 31 U.S.C. 191), THE COURTS HAVE HELD REPEATEDLY THAT THE UNITED STATES HAS THE SAME RIGHT BELONGING TO OTHER CREDITORS TO APPLY FUNDS OWING TO A DEBTOR IN LIQUIDATION OF THAT DEBTOR'S OBLIGATION DUE THE UNITED STATES. GRATIOT V. UNITED STATES, 15 PET. 336, 370; MCKNIGHT V. UNITED STATES, 98 U.S. 179. SINCE, AS HEREINBEFORE STATED THE "NO SET-OFF PROVISIONS" PRESCRIBED IN THE ASSIGNMENT OF CLAIMS ACT, SUPRA, ARE NOT FOR APPLICATION, AND SINCE YOUR EQUITABLE RIGHT TO PAYMENT OF THE CLAIM IS SUBJECT TO THE SAME LEGAL DEFENSES AS COULD HAVE BEEN INVOKED BY THE GOVERNMENT AGAINST ANY CLAIM BY THE CONTRACTOR, THE GOVERNMENT'S RIGHT IS PARAMOUNT, AND THEREFORE PARTIAL RECOUPMENT BY SET-OFF OF THE BANKRUPT'S FEDERAL TAX LIABILITY IS PROPER.

ACCORDINGLY, ON THE PRESENT RECORD, WE CONCLUDE THAT THE DISALLOWANCE OF YOUR CLAIM WAS CORRECT AND MUST BE SUSTAINED.