B-136358, NOV. 6, 1959

B-136358: Nov 6, 1959

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TO KING AND KING: REFERENCE IS MADE TO YOUR LETTERS OF MAY 7 AND 27. THERE WAS FOUND TO BE DUE THE W. 158.25 WAS SET OFF TO LIQUIDATE THE COMPANY'S LOAN INDEBTEDNESS OF $11. D. FULTON CONSTRUCTION COMPANY WAS EARNED BY IT PRIOR TO ITS DEFAULT AND THAT YOUR CLIENT. YOU CONTEND THAT THE SET-OFF ACTION TAKEN BY THE CLAIMS DIVISION OF OUR OFFICE UNDER THE REFERRED-TO SETTLEMENTS IS CONTRARY TO THE PROVISIONS OF A COURT ORDER DATED OCTOBER 22. WAS ORDERED TO COLLECT ALL PROCEEDS OF THE CONTRACT. YOU ALLEGE THAT THE GOVERNMENT WAS A PARTY TO THIS BANKRUPTCY PROCEEDING AND THAT THE DEBT OF THE W. D. FULTON CONSTRUCTION COMPANY WAS BEFORE THE COURT WHEN THE ORDER OF OCTOBER 22. WAS ENTERED. THE GOVERNMENT WAS THEREFORE BOUND BY THE TERMS OF THE COURT'S ORDER AND THAT IT HAD NO RIGHT TO DISREGARD THAT ORDER BY SETTING OFF THE AMOUNTS OWED IT BY THE COMPANY AGAINST THE PREVIOUSLY EARNED PROCEEDS OF THE CONTRACT.

B-136358, NOV. 6, 1959

TO KING AND KING:

REFERENCE IS MADE TO YOUR LETTERS OF MAY 7 AND 27, 1959, RELATIVE TO THE CLAIM OF W. D. AMIS OF THE AMIS CONSTRUCTION COMPANY, OKLAHOMA CITY, OKLAHOMA, FOR AMOUNTS DUE UNDER DEPARTMENT OF AGRICULTURE, SOIL CONSERVATION SERVICE CONSTRUCTION CONTRACT NO. 12-10-340-94, BETWEEN THE UNITED STATES AND THE W. D. FULTON CONSTRUCTION COMPANY, NOW BANKRUPT. SETTLEMENTS OF THIS OFFICE DATED OCTOBER 28, 1958, THERE WAS FOUND TO BE DUE THE W. D. FULTON CONSTRUCTION COMPANY THE TOTAL SUM OF $25,063.22 AND OF THIS SUM, $21,158.25 WAS SET OFF TO LIQUIDATE THE COMPANY'S LOAN INDEBTEDNESS OF $11,768.54 TO THE SMALL BUSINESS ADMINISTRATION AND CERTAIN OTHER DEBTS OF THE COMPANY TO THE GOVERNMENT. THE RECORD INDICATES THAT THE AMOUNT DUE THE W. D. FULTON CONSTRUCTION COMPANY WAS EARNED BY IT PRIOR TO ITS DEFAULT AND THAT YOUR CLIENT, AS INDEMNITOR OF THE SURETY UNDER THE CONTRACT, COMPLETED THE UNPERFORMED PORTION OF THE CONTRACT WORK.

YOU CONTEND THAT THE SET-OFF ACTION TAKEN BY THE CLAIMS DIVISION OF OUR OFFICE UNDER THE REFERRED-TO SETTLEMENTS IS CONTRARY TO THE PROVISIONS OF A COURT ORDER DATED OCTOBER 22, 1957, OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA, IN THE MATTER OF W. D. FULTON CONSTRUCTION COMPANY, A CO-PARTNERSHIP, BANKRUPT, NO. 10459, IN WHICH GUS RINEHART, AS RECEIVER FOR THE BANKRUPT, WAS ORDERED TO COLLECT ALL PROCEEDS OF THE CONTRACT, AND TO PAY OVER TO W. D. AMIS, INDEMNITOR OF THE SURETY UNDER THE CONTRACT, THE SEABOARD SURETY COMPANY, AN AMOUNT SUFFICIENT TO REIMBURSE HIM FOR ALL COSTS OF COMPLETION OF THE CONTRACT AND FOR ALL CLAIMS FOR LABOR AND MATERIALS INCURRED BY THE W. D. FULTON CONSTRUCTION COMPANY PRIOR TO DEFAULT, WHICH W. D. AMIS MIGHT BE REQUIRED TO PAY PURSUANT TO HIS OBLIGATION AS INDEMNITOR FOR THE SURETY.

YOU ALLEGE THAT THE GOVERNMENT WAS A PARTY TO THIS BANKRUPTCY PROCEEDING AND THAT THE DEBT OF THE W. D. FULTON CONSTRUCTION COMPANY WAS BEFORE THE COURT WHEN THE ORDER OF OCTOBER 22, 1957, WAS ENTERED. YOU ALSO ALLEGE THAT SINCE THE GOVERNMENT DID NOT OBJECT TO THE ISSUANCE OF THAT ORDER, OR TO THE TERMS THEREOF, GIVING W. D. AMIS PRIORITY TO THE PREVIOUSLY EARNED PROCEEDS OF THE CONTRACT, THE GOVERNMENT WAS THEREFORE BOUND BY THE TERMS OF THE COURT'S ORDER AND THAT IT HAD NO RIGHT TO DISREGARD THAT ORDER BY SETTING OFF THE AMOUNTS OWED IT BY THE COMPANY AGAINST THE PREVIOUSLY EARNED PROCEEDS OF THE CONTRACT.

YOU ALSO CONTEND THAT THE DECISIONS IN UNITED STATES V. MUNSEY TRUST COMPANY, 332 U.S. 234, AND STANDARD ACCIDENT INSURANCE COMPANY V. UNITED STATES, 119 C.CLS. 749, UPON WHICH THE CLAIMS DIVISION OF OUR OFFICE RELIED IN MAKING THE SET-OFFS, ARE NOT APPLICABLE SINCE THE FACTS IN YOUR CASE ARE COMPLETELY DIFFERENT FROM THE FACTS INVOLVED IN THOSE CASES. YOU POINT OUT THAT IN NEITHER OF THOSE CASES WAS THE SURETY AFFORDED A PRIORITY TO PREVIOUSLY EARNED MONIES BY ORDER OF BANKRUPTCY COURT, NOR DID THE GOVERNMENT CONTRACTING OFFICER IN THOSE CASES ISSUE AN ORDER TO THE SURETY TO COMPLETE THE WORK AFTER BEING INFORMED OF A COURT ORDER PROVIDING THAT THE SURETY SHOULD HAVE PRIORITY TO AMOUNTS PREVIOUSLY EARNED BY THE DEFAULTING CONTRACTOR. YOU ALSO CONTEND THAT THE FACTS IN THE PRESENT CASE ARE ANALOGOUS TO THOSE CONSIDERED IN OUR DECISION OF SEPTEMBER 24, 1951, 31 COMP. GEN. 103, WHEREIN WE APPROVED A SO-CALLED "TAKEOVER AGREEMENT" BY WHICH THE GOVERNMENT AGREED TO PAY THE SURETY ALL CONTRACT BALANCES UP TO THE COST OF COMPLETION, DESPITE TAXES OWED BY THE CONTRACTOR, IN RETURN FOR THE SURETY'S PROMISE TO COMPLETE THE CONTRACT WORK.

IN REGARD TO YOUR FIRST CONTENTION, WHILE THE COURT ORDER OF OCTOBER 22, 1957, DIRECTS PAYMENT OF ALL BALANCES DUE UNDER THE SUBJECT CONTRACT TO THE RECEIVER FOR THE W. D. FULTON CONSTRUCTION COMPANY, THERE IS NOTHING OF RECORD TO SHOW THAT THE CONTRACTOR'S OBLIGATIONS TO THE UNITED STATES WERE BEFORE THE COURT FOR CONSIDERATION AT THE TIME THE ORDER WAS ISSUED. FOR THAT REASON THE ORDER MAY BE VIEWED AS APPLYING ONLY TO THE NET BALANCE WHICH OTHERWISE WOULD BE PAYABLE TO THE CONTRACTOR.

AS TO YOUR ALLEGATION THAT THE GOVERNMENT WAS A PARTY TO THE BANKRUPTCY PROCEEDINGS, THE SMALL BUSINESS ADMINISTRATION HAS ADVISED US BY LETTER DATED SEPTEMBER 3, 1959, THAT ON OCTOBER 22, 1957, THE DATE ON WHICH THE COURT ORDER WAS ISSUED, THE FULTON CONSTRUCTION COMPANY WAS NOT IN BANKRUPTCY; THAT ON OCTOBER 14, 1957, A TEMPORARY RECEIVER WAS APPOINTED TO TAKE CONTROL OF THE PROPERTY AND AFFAIRS OF THE FULTON CONSTRUCTION COMPANY FOR THE PURPOSE OF DETERMINING WHETHER THE BUSINESS COULD BE SUCCESSFULLY CONTINUED OR SHOULD BE PLACED IN BANKRUPTCY; THAT THE SMALL BUSINESS ADMINISTRATION WAS NOT MADE A PARTY TO SUCH PROCEEDINGS, DID NOT RECEIVE ANY OFFICIAL NOTIFICATION THEREOF, AND DID NOT, UNTIL JANUARY 17, 1958, TAKE ANY OFFICIAL OR FORMAL PART IN THE PROCEEDINGS; AND THAT ALTHOUGH THE RECEIVER IN HIS REPORT OF NOVEMBER 15, 1957, MENTIONED THE SMALL BUSINESS ADMINISTRATION LOAN TO THE FULTON CONSTRUCTION COMPANY, NO CLAIM WAS EVER FILED ON BEHALF OF THE SMALL BUSINESS ADMINISTRATION IN THE RECEIVERSHIP PROCEEDINGS. IT WAS ALSO REPORTED THAT ON JANUARY 17, 1958, UPON APPLICATION OF THE RECEIVER, THE DISTRICT COURT ORDERED THE RECEIVER TO RELEASE, TO THE CUSTODY AND POSSESSION OF THE UNITED STATES, FOR AND ON BEHALF OF THE SMALL BUSINESS ADMINISTRATION, ALL EQUIPMENT, FURNITURE AND FIXTURES COVERED BY THE SMALL BUSINESS ADMINISTRATION MORTGAGE, AND AUTHORIZED THE UNITED STATES TO MARSHAL AND SELL ALL SUCH PROPERTY, WITH THE PROCEEDS TO BE APPLIED TO THE INDEBTEDNESS TO THE SMALL BUSINESS ADMINISTRATION. IN THE SAME ORDER, THE JUDGE DEFERRED ACTION ON THE RECOMMENDATION OF THE RECEIVER THAT THE FULTON COMPANY BE PLACED IN BANKRUPTCY. THE UNITED STATES ATTORNEY REPRESENTED THE GOVERNMENT AT THE HEARING AT WHICH THAT ORDER WAS ENTERED. ON MARCH 13, 1958, UPON PETITION FILED BY IT, THE FULTON CONSTRUCTION COMPANY WAS ADJUDGED A BANKRUPT. SEPTEMBER 8, 1958, THE UNITED STATES ATTORNEY FILED A PROOF OF CLAIM IN THE BANKRUPTCY PROCEEDINGS ON BEHALF OF THE SMALL BUSINESS ADMINISTRATION.

IN VIEW OF THE FOREGOING, IT IS APPARENT THAT THE CLAIM OF THE SMALL BUSINESS ADMINISTRATION WAS NOT BEFORE THE COURT ON OCTOBER 22, 1957, THE DATE ON WHICH THE REFERRED-TO ORDER WAS ISSUED. IN VIEW THEREOF, THE GOVERNMENT WAS NOT BOUND BY THE ORDER ENTERED BY THE COURT ON OCTOBER 22, 1957.

WE DO NOT AGREE WITH YOUR CONTENTION THAT THE MUNSEY TRUST COMPANY AND THE STANDARD ACCIDENT INSURANCE COMPANY CASES ARE NOT APPLICABLE TO THE PRESENT SITUATION BECAUSE OF THE ISSUANCE OF THE COURT ORDER. WE ARE OF THE OPINION THAT THE ISSUANCE OF THE COURT ORDER IS NOT MATERIAL IN THE PRESENT CASE BECAUSE THE GOVERNMENT WAS NOT A PARTY TO THE PROCEEDINGS AT WHICH SUCH COURT ORDER WAS ENTERED.

WE DO NOT CONSIDER THE FACTS INVOLVED IN THE DECISION OF SEPTEMBER 24, 1951, 31 COMP. GEN. 103, AS BEING ANALOGOUS TO THE FACTS INVOLVED IN YOUR CASE. IN THAT CASE THE UNFINISHED WORK WAS COMPLETED UNDER A WRITTEN COMPLETION AGREEMENT. IN THE INSTANT CASE YOUR CLIENT COMPLETED THE WORK UNDER A "RESUME WORK ORDER" WHICH MAY NOT BE REGARDED AS A "TAKEOVER AGREEMENT," SUCH AS WAS INVOLVED IN OUR DECISION OF SEPTEMBER 24, 1951.