B-14876, FEBRUARY 18, 1941, 20 COMP. GEN. 458

B-14876: Feb 18, 1941

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1941: I HAVE YOUR LETTER OF FEBRUARY 7. IT WILL BE NECESSARY FOR THE FARM SECURITY ADMINISTRATION OF THIS DEPARTMENT TO MAKE A SUBSTANTIAL NUMBER OF REHABILITATION LOANS TO NEEDY FARM FAMILIES WHO ARE BEING VACATED FROM THE AREAS INVOLVED IN SUCH LAND PURCHASING ACTIVITIES. MANY OF THESE FAMILIES WILL PROBABLY BE FOUND TO HAVE SOME EQUITY IN THE FARMS BEING PURCHASED. FROM WHICH THEY ARE BEING VACATED. THE DETERMINATION AND PAYMENT OF THE VALUE OF SUCH EQUITIES WILL BE POSTPONED BECAUSE OF UNAVOIDABLE TITLE CLEARANCE DELAYS. IT IS PROPOSED THAT THE FARM SECURITY ADMINISTRATION WILL MAKE LOANS FOR URGENT REHABILITATION PURPOSES AND RECEIVE REPAYMENT THEREOF OUT OF THE AMOUNT ULTIMATELY FOUND PAYABLE UNDER THE LAND PURCHASE OR LEASE CONTRACTS ENTERED INTO BY SUCH FAMILIES WITH THE WAR OR NAVY DEPARTMENT.

B-14876, FEBRUARY 18, 1941, 20 COMP. GEN. 458

ASSIGNMENTS OF CONTRACT PAYMENTS WHERE THERE HAS BEEN A VALID ASSIGNMENT OF AMOUNTS TO BECOME PAYABLE UNDER WAR OR NAVY DEPARTMENT LAND PURCHASE OR LEASE CONTRACTS, PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, EITHER BEFORE THE MAKING OF A LOAN BY THE FARM SECURITY ADMINISTRATION TO THE ASSIGNOR, OR BEFORE MATURITY OF THE LOAN, THE RIGHT TO RECOVER THE AMOUNT OF THE LOAN BY SET-OFF WOULD NOT BE AVAILABLE TO SAID ADMINISTRATION AS AGAINST THE ASSIGNEE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF AGRICULTURE, FEBRUARY 18, 1941:

I HAVE YOUR LETTER OF FEBRUARY 7, 1941, AS FOLLOWS:

AS AN INCIDENT TO THE RECENTLY EXPANDED LAND PURCHASING ACTIVITIES OF THE WAR AND NAVY DEPARTMENTS, IT WILL BE NECESSARY FOR THE FARM SECURITY ADMINISTRATION OF THIS DEPARTMENT TO MAKE A SUBSTANTIAL NUMBER OF REHABILITATION LOANS TO NEEDY FARM FAMILIES WHO ARE BEING VACATED FROM THE AREAS INVOLVED IN SUCH LAND PURCHASING ACTIVITIES. MANY OF THESE FAMILIES WILL PROBABLY BE FOUND TO HAVE SOME EQUITY IN THE FARMS BEING PURCHASED, AND FROM WHICH THEY ARE BEING VACATED, BUT THE DETERMINATION AND PAYMENT OF THE VALUE OF SUCH EQUITIES WILL BE POSTPONED BECAUSE OF UNAVOIDABLE TITLE CLEARANCE DELAYS. AS TO THESE FAMILIES, IT IS PROPOSED THAT THE FARM SECURITY ADMINISTRATION WILL MAKE LOANS FOR URGENT REHABILITATION PURPOSES AND RECEIVE REPAYMENT THEREOF OUT OF THE AMOUNT ULTIMATELY FOUND PAYABLE UNDER THE LAND PURCHASE OR LEASE CONTRACTS ENTERED INTO BY SUCH FAMILIES WITH THE WAR OR NAVY DEPARTMENT.

IT IS ANTICIPATED, HOWEVER, THAT, IN SOME INSTANCES, ASSIGNMENTS OF THE AMOUNTS PAYABLE UNDER THE PURCHASE OR LEASE CONTRACTS WILL HAVE BEEN MADE TO THIRD PERSONS UNDER THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940 (54 STAT. 1029) BEFORE THE MAKING OF THE LOANS. IN VIEW OF THIS, THE QUESTION HAS ARISEN AS TO WHETHER THE FARM SECURITY ADMINISTRATION WILL BE ENTITLED TO THE MONEYS WHICH WILL BECOME DUE UNDER THE PURCHASE OR LEASE CONTRACTS. IN THIS CONNECTION, IT IS NOTED THAT SECTION 1 OF THAT ACT PROVIDES THAT:

"ANY CONTRACT ENTERED INTO BY THE WAR DEPARTMENT OR THE NAVY DEPARTMENT MAY PROVIDE THAT PAYMENTS TO AN ASSIGNEE OF ANY CLAIM ARISING UNDER SUCH CONTRACT SHALL NOT BE SUBJECT TO REDUCTION OR SET OFF, AND IF IT IS SO PROVIDED IN SUCH CONTRACT, SUCH PAYMENTS SHALL NOT BE SUBJECT TO REDUCTION OR SET-OFF FOR ANY INDEBTEDNESS OF THE ASSIGNOR TO THE UNITED STATES ARISING INDEPENDENTLY OF SUCH CONTRACT.'

FURTHER, WE ARE ADVISED THAT THE FORMS OF OPTION, WHICH, UPON ACCEPTANCE, CONSTITUTE THE PURCHASE CONTRACTS OF THE WAR AND NAVY DEPARTMENTS, AND THE FORMS OF LEASE WHICH ARE UTILIZED, DO NOT CONTAIN ANY PROVISION THAT CLAIMS ARISING THEREUNDER SHALL NOT BE SUBJECT TO REDUCTION OR SET-OFF. IT WOULD APPEAR, THEREFORE, UNDER THE PROVISIONS OF THE LAST SENTENCE OF SECTION 1 OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, SUPRA, THAT SUMS PAYABLE UNDER SUCH CONTRACTS TO PERSONS WHO HAVE OBTAINED LOANS FROM THE FARM SECURITY ADMINISTRATION WOULD BE SUBJECT TO SET-OFF FOR THE AMOUNTS OF SUCH LOANS. HOWEVER, SINCE OTHER LENDING INSTITUTIONS MIGHT, PRIOR TO THE MAKING OF SUCH LOANS, HAVE ADVANCED FUNDS TO THE SAME BORROWERS IN RELIANCE ON THE AMENDMENT EMBODIED IN THE FIRST PART OF SECTION 1 OF SAID ACT, THIS DEPARTMENT DOES NOT DESIRE TO ADOPT THE SUGGESTED PROCEDURE WITHOUT YOUR FORMAL DECISION AS TO WHETHER THE RIGHT OF SET-OFF WILL BE AVAILABLE AS AGAINST AN ASSIGNEE OF SUMS OWING UNDER SUCH A LAND PURCHASE OR LEASE CONTRACT WHO HAS TAKEN AN ASSIGNMENT BEFORE THE MAKING OF A LOAN BY THE FARM SECURITY ADMINISTRATION. IT IS ASSUMED, OR COURSE, THAT THE RIGHT OF SET-OFF WILL BE AVAILABLE TO THE GOVERNMENT WHERE THE LOAN BY THE FARM SECURITY ADMINISTRATION IS MADE PRIOR TO THE FILING OF AN ASSIGNMENT BY A THIRD PARTY.

SINCE THE NEED FOR THESE LOANS IS URGENT AND IMMEDIATE, YOUR EARLY DECISION WILL BE APPRECIATED.

IN THE EVENT OF A VALID ASSIGNMENT, PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, PUBLIC, NO. 811, APPROVED OCTOBER 9, 1940, MADE PRIOR TO THE DATE OF THE MAKING OF A LOAN BY THE FARM SECURITY ADMINISTRATION IT WOULD APPEAR THAT THE RIGHT OF SET-OFF WOULD NOT BE AVAILABLE TO THE FARM SECURITY ADMINISTRATION AS AGAINST THE ASSIGNEE OF MONEYS DUE UNDER THE CONTRACT ASSIGNED. WHILE AN ASSIGNEE ACQUIRES NO GREATER RIGHTS THROUGH AN ASSIGNMENT THAN HIS ASSIGNOR HAD AT THE TIME OF THE ASSIGNMENT, AND TAKES THE ASSIGNMENT SUBJECT TO ANY EXISTING RIGHT OF SET-OFF, HIS RIGHTS UNDER THE ASSIGNMENT ARE NOT AFFECTED BY INDEPENDENT CLAIMS SUBSEQUENTLY ACCRUING IN FAVOR OF THE GOVERNMENT AGAINST HIS ASSIGNOR. THAT IS TO SAY, A DEBTOR CANNOT SET OFF RIGHTS ACQUIRED UNDER OTHER TRANSACTIONS SUBSEQUENT TO THE DATE OF RECEIPT OF NOTICE OF A VALID ASSIGNMENT. SEE WITHERS V. GREENE, 9 HOW. 213, 222; EASTERN TUBE CO. V. HARRISON, 140 F. 519; FIRST STATE BANK V. PURE VAN PIPE LINE CO., 77 F. (2D) 820; FIRST NATIONAL BANK V. PERRIS IRRIGATION DISTRICT., 40 P. 45; BOARD OF EDUCATION V. STATE, 46 P. (2D) 325; 57 CORPUS JURIS 486.

THERE IS NOTED YOUR STATEMENT THAT---

* * * IT IS ASSUMED, OF COURSE, THAT THE RIGHT OF SET-OFF WILL BE AVAILABLE TO THE GOVERNMENT WHERE THE LOAN BY THE FARM SECURITY ADMINISTRATION IS MADE PRIOR TO THE FILING OF AN ASSIGNMENT BY A THIRD PARTY.

YOUR LETTER DOES NOT SET FORTH THE TERMS AND CONDITIONS UNDER WHICH THE LOANS WILL BE MADE BUT YOUR ASSUMPTION WITH RESPECT TO THE RIGHT OF SET- OFF WHERE THE LOAN IS MADE PRIOR TO AN ASSIGNMENT IS NOT NECESSARILY CORRECT. AS STATED ABOVE, AN ASSIGNEE TAKES AN ASSIGNMENT SUBJECT TO EXISTING SET-OFFS BUT THE COURTS HAVE HELD GENERALLY THAT THE RIGHT TO SET -OFF MUST HAVE MATURED PRIOR TO THE ASSIGNMENT, THAT IS, THAT IT MUST HAVE BEEN AN ACTIONABLE RIGHT AGAINST THE ASSIGNOR AT THE TIME OF THE ASSIGNMENT. SEE MCMANN V. WILCOX OIL AND GAS CO., 250 P. 780, WHEREIN THE COURT QUOTED AND ADOPTED THE FOLLOWING PRINCIPLES:

IF, HOWEVER, THE ASSIGNMENT IS MADE BEFORE THE OPPOSING DEMAND BECOMES MATURE, AND THE LATTER DOES NOT THUS BECOME ACTUALLY DUE AND PAYABLE UNTIL AFTER THE TRANSFER, THE DEBTOR'S RIGHT OF SET-OFF IS DESTROYED BY THE MERE FACT OF THE ASSIGNMENT * * *.

UNTIL A DEMAND BECOMES DUE, THE SET-OFF OR COUNTERCLAIM MAY BE DEFEATED BY THE ASSIGNMENT BY THE OPPOSITE PARTY OF HIS CLAIM, THOUGH THE LATTER BE INSOLVENT AND HIS DEMAND HAS NOT BEEN PAYABLE WHEN ASSIGNED.

TO THE SAME EFFECT SEE BOARD OF EDUCATION V. STATE, SUPRA, AND UNITED STATES TRUST CO. V. MENDELSON, 148 N.E. 745.

IN VIEW OF THOSE PRINCIPLES IT WOULD NOT APPEAR THAT THE RIGHT OF SET-OFF WOULD BE AVAILABLE TO THE FARM SECURITY ADMINISTRATION, AS AGAINST AN ASSIGNEE, WITH RESPECT TO LOANS MADE PRIOR TO AN ASSIGNMENT BUT WHICH DID NOT MATURE UNTIL AFTER THE ASSIGNMENT.

IT IS TO BE NOTED THAT THE ASSIGNMENT OF CLAIMS ACT OF 1940 PERMITS ASSIGNMENTS TO "ANY FEDERAL LENDING AGENCY" PROVIDED, AMONG OTHER THINGS, THAT "NO CLAIM SHALL BE ASSIGNED IF IT ARISES UNDER A CONTRACT WHICH FORBIDS SUCH ASSIGNMENT.' WHETHER, IN VIEW THEREOF AND OF THE PRINCIPLES OF LAW STATED ABOVE, THE FARM SECURITY ADMINISTRATION SHOULD TAKE ASSIGNMENTS OF THE "MONEYS DUE OR TO BECOME DUE" UNDER THE CONTRACTS MENTIONED IN YOUR LETTER, IN SUPPORT OF THE LOANS, OR WHETHER SUCH CONTRACTS SHOULD FORBID ASSIGNMENTS THEREUNDER, IN ORDER FULLY TO PROTECT THE INTERESTS OF THE UNITED STATES, ARE MATTERS FOR ADMINISTRATIVE DETERMINATION.