B-150606, MAR. 7, 1963

B-150606: Mar 7, 1963

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TO THE SECRETARY OF THE INTERIOR: WE HAVE A LETTER OF JANUARY 10. ON WHICH THE SURETY WAS THE CENTRAL SURETY AND INSURANCE CORPORATION. WAS IN THE AMOUNT OF $33. THE WORK WAS PERFORMED BY THE CONTRACTOR AND WAS FINALLY ACCEPTED BY THE GOVERNMENT AS OF NOVEMBER 25. 014.98 DUE UNDER THE CONTRACT WAS WITHHELD BY THE CONTRACTING OFFICER TO COVER POSSIBLE EXPENSES ARISING DURING THE 1 YEAR GUARANTEE PERIOD AND FOR CERTAIN RELATED REASONS. ON THE SAME DAY BANKRUPTCY PROCEEDINGS WERE INSTITUTED BY THE CONTRACTOR AND HE WAS ULTIMATELY ADJUDICATED A BANKRUPT. THE REPORT ON THE MATTER INDICATES THAT THE GOVERNMENT IS NOW A MERE STAKEHOLDER WITH RESPECT TO THE SUM STILL DUE UNDER THE TERMS OF THE CONTRACT.

B-150606, MAR. 7, 1963

TO THE SECRETARY OF THE INTERIOR:

WE HAVE A LETTER OF JANUARY 10, 1963, WITH ENCLOSURES, SIGNED BY THE ASSISTANT SECRETARY, REQUESTING OUR DECISION AS TO THE APPROPRIATE DISPOSITION OF AN AMOUNT REMAINING DUE UNDER CONTRACT NO. 14-20-0150 436, AWARDED MAY 12, 1961, TO THE WIESNER STEEL ERECTION COMPANY FOR CERTAIN CONSTRUCTION SERVICES. UPON AWARD THE CONTRACTOR FURNISHED PERFORMANCE AND PAYMENT BONDS AS REQUIRED. THE PAYMENT BOND, ON WHICH THE SURETY WAS THE CENTRAL SURETY AND INSURANCE CORPORATION, WAS IN THE AMOUNT OF $33,800 AS COMPARED TO A TOTAL CONTRACT PRICE OF $67,600.

THE WORK WAS PERFORMED BY THE CONTRACTOR AND WAS FINALLY ACCEPTED BY THE GOVERNMENT AS OF NOVEMBER 25, 1961. AT THAT TIME, HOWEVER, THE SUM OF $8,014.98 DUE UNDER THE CONTRACT WAS WITHHELD BY THE CONTRACTING OFFICER TO COVER POSSIBLE EXPENSES ARISING DURING THE 1 YEAR GUARANTEE PERIOD AND FOR CERTAIN RELATED REASONS.

BY LETTER OF MARCH 2, 1962, THE ATTORNEYS FOR THE SURETY ADVISED THE CONTRACTING AGENCY THAT THE CONTRACTOR HAD DEFAULTED ON PAYMENTS DUE AND OWING TO LABORERS AND MATERIALMEN. ON APRIL 2, 1962, THE CONTRACTOR RELEASED THE GOVERNMENT FROM ALL CLAIMS ARISING AS A RESULT OF WORK PERFORMED UNDER THE CONTRACT. ON THE SAME DAY BANKRUPTCY PROCEEDINGS WERE INSTITUTED BY THE CONTRACTOR AND HE WAS ULTIMATELY ADJUDICATED A BANKRUPT.

THE REPORT ON THE MATTER INDICATES THAT THE GOVERNMENT IS NOW A MERE STAKEHOLDER WITH RESPECT TO THE SUM STILL DUE UNDER THE TERMS OF THE CONTRACT. THE AMOUNT, HOWEVER, IS CLAIMED BOTH BY THE SURETY AND BY THE TRUSTEE IN BANKRUPTCY. THE PURPOSE OF THE SUBMISSION IS TO OBTAIN OUR ADVICE AS TO WHICH, IF EITHER, OF THE TWO CLAIMANTS SHOULD RECEIVE THE AMOUNT REMAINING DUE.

IN A RECENT CASE, PEARLMAN V. RELIANCE INSURANCE CO., U.S.SUP.CT., DECEMBER 3, 1962, THE COURT HAD UNDER CONSIDERATION A SITUATION IN WHICH A GOVERNMENT CONTRACTOR WAS TERMINATED OWING CONSIDERABLE AMOUNTS TO LABORERS AND MATERIALMEN. THE CONTRACT WAS RELET AND SUCCESSFULLY COMPLETED BY THE SUCCESSOR CONTRACTOR. A SIGNIFICANT SUM IN THE FORM OF RETAINED PERCENTAGES REMAINED DUE TO THE FIRST CONTRACTOR WHO IN THE MEANTIME HAD BEEN ADJUDICATED A BANKRUPT. THIS SUM, AS TO WHICH THE GOVERNMENT WAS A MERE STAKEHOLDER, WAS CLAIMED BOTH BY THE SURETY, WHICH HAD PAID OUT AN EVEN LARGER SUM TO LABORERS AND MATERIALMEN UNDER THE PAYMENT BOND, AND THE TRUSTEE IN BANKRUPTCY ON BEHALF OF THE GENERAL CREDITORS. JUDGMENT WAS GIVEN FOR THE SURETY. TWO SEPARATE OPINIONS WERE RENDERED, EACH BASING THE JUDGMENT ON A DIFFERENT THEORY OF LAW. HOWEVER, THE CONCLUSION WAS THE SAME IN EACH CASE. THE ATTORNEYS FOR THE SURETY IN A LETTER OF JANUARY 17, 1963, URGE THAT THE CITED CASE SUPPORTS THEIR CONTENTION THAT PAYMENT SHOULD BE AUTHORIZED ADMINISTRATIVELY TO THEIR CLIENT.

IN THE PEARLMAN CASE THE COURT WAS ABLE CONCLUSIVELY TO ADJUDICATE THE RIGHTS OF ALL OF THE INTERESTED PARTIES CONCERNED. NO SUCH FINAL ADJUDICATION WOULD, HOWEVER, RESULT FROM ADMINISTRATIVE DISPOSITION OF THE MATTER. IN THIS CONNECTION IT SHOULD BE NOTED THAT THE RIGHT OF THE SURETY TO SUBROGATION IS AN EQUITABLE RIGHT AND IS PREDICATED UPON THE PAYMENT OF ALL CLAIMS FOR LABOR AND MATERIALS ARISING UNDER THE CONTRACT. UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73 (1920). ASCERTAINMENT OF THE FACTS IN THIS RESPECT APPEARS TO BE A MATTER FOR JUDICIAL RATHER THAN ADMINISTRATIVE COGNIZANCE AND, SINCE THE ADMINISTRATIVE DECISION COULD NOT BE CONSIDERED RES JUDICATA, THE GOVERNMENT MIGHT BE SUBJECT TO DOUBLE LIABILITY SHOULD ANOTHER CLAIMANT APPEAR IN THE FUTURE.

SINCE IN THIS CASE THE CLAIM OF THE SURETY IS DISPUTED BY THE TRUSTEE, WE DO NOT FEEL THAT WE CAN PROPERLY AUTHORIZE PAYMENT TO EITHER THE SURETY OR THE TRUSTEE EXCEPT PURSUANT TO AGREEMENT OF THE PARTIES OR TO AN ORDER OF A COURT OF APPROPRIATE JURISDICTION. IN ORDER TO HAVE THE MATTER RESOLVED AS PROMPTLY AS POSSIBLE, THE SURETY AND TRUSTEE MAY BE ADVISED THAT, IF THE SURETY AGREES, THE GOVERNMENT WILL TURN THE AMOUNT AT ISSUE OVER TO THE TRUSTEE SO THAT THE SURETY MAY PURSUE ITS REMEDY IN THE BANKRUPTCY COURT. OTHERWISE PAYMENT SHOULD BE WITHHELD PENDING JUDICIAL DETERMINATION OF THE RIGHTS OF THE PARTIES IN SUCH PROCEEDINGS AS THEY, OR EITHER OF THEM, MAY CHOOSE TO INSTITUTE.

COPIES OF THIS LETTER ARE BEING FURNISHED TO THE ATTORNEYS FOR THE SURETY AND TO THE TRUSTEE IN BANKRUPTCY.