B-157563, OCT. 26, 1965
Highlights
UNITED STATES DEPARTMENT OF AGRICULTURE: WE HAVE RECEIVED YOUR LETTER DATED JULY 1. THE CONTRACT PROCEEDS WERE ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940. RECEIPT OF NOTICE THEREOF WAS ACKNOWLEDGED BY THE CONTRACTING OFFICER ON AUGUST 4. IS $36. WERE MADE TO THE ASSIGNEE. PERFORMANCE AND PAYMENT BONDS ON THE CONTRACT WERE FURNISHED TO THE UNITED STATES BY THE NATIONAL UNION FIRE INSURANCE COMPANY. THE UNITED STATES OF AMERICA IS NOT NOW A PARTY TO THIS SUIT. WAS PAID INTO COURT. YOUR INQUIRY RAISES THE QUESTION OF HOW AND TO WHOM THE FINAL PAYMENT IS TO BE DISTRIBUTED. WE ARE CITED TO THE DECISION OF THE SUPREME COURT IN PEARLMAN V. TO HAVE A BETTER RIGHT TO PERCENTAGES RETAINED BY THE GOVERNMENT UNDER THE CONTRACT THAN THE CONTRACTOR'S TRUSTEE IN BANKRUPTCY.
B-157563, OCT. 26, 1965
TO MR. L. P. WILSEY, AUTHORIZED CERTIFYING OFFICER, UNITED STATES DEPARTMENT OF AGRICULTURE:
WE HAVE RECEIVED YOUR LETTER DATED JULY 1, 1965, WITH ENCLOSURES, REQUESTING OUR DECISION ON THE PROPRIETY OF MAKING A PAYMENT IN THE AMOUNT OF $6,123.56 UNDER A VOUCHER DRAWN IN FAVOR OF NATIONAL UNION FIRE INSURANCE COMPANY, C/O ROBERT E. HERRMANN, ATTORNEY, OR QUALITY FACTORS. THE FUNDS CONSTITUTE THE FOURTH AND FINAL PAYMENT UNDER CONTRACT NO. 39- 451, DATED MAY 27, 1964, WITH GENERAL PAVING AND LANDSCAPE COMPANY, COVERING CONSTRUCTION AND PAVEMENT AT CRYSTAL LAKE CAMPGROUND ROAD, ANGELES NATIONAL FOREST, CALIFORNIA.
THE CONTRACT PROCEEDS WERE ASSIGNED PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, 41 U.S.C. 15, TO QUALITY FACTORS ON AUGUST 3, 1964, AND RECEIPT OF NOTICE THEREOF WAS ACKNOWLEDGED BY THE CONTRACTING OFFICER ON AUGUST 4, 1964. THE TOTAL CONTRACT PRICE, AS REVISED, IS $36,072.48. THE FIRST THREE PAYMENTS, FOR A TOTAL OF $26,198.92, WERE MADE TO THE ASSIGNEE. THE SUM OF $3,750 HAS BEEN DEDUCTED FROM THE AMOUNT OWING TO THE CONTRACTOR AS LIQUIDATED DAMAGES FOR DELAYED COMPLETION OF PERFORMANCE.
PERFORMANCE AND PAYMENT BONDS ON THE CONTRACT WERE FURNISHED TO THE UNITED STATES BY THE NATIONAL UNION FIRE INSURANCE COMPANY. THE FILE INDICATES THAT UNPAID CLAIMS OF LABORERS AND MATERIALMEN EXCEED$42,000. THE SURETY, BY ITS ATTORNEY, MR. ROBERT E. HERRMANN, HAS FILED AN ACTION OF INTERPLEADER, NO. 65-780FW, IN THE UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF CALIFORNIA. THE UNITED STATES OF AMERICA IS NOT NOW A PARTY TO THIS SUIT. THE PENALTY AMOUNT OF THE PAYMENT BOND, $17,087.63, WAS PAID INTO COURT.
YOUR INQUIRY RAISES THE QUESTION OF HOW AND TO WHOM THE FINAL PAYMENT IS TO BE DISTRIBUTED. WE ARE CITED TO THE DECISION OF THE SUPREME COURT IN PEARLMAN V. RELIANCE INSURANCE CO., 371 U.S. 132 (1962), WHEREIN THE COURT HELD THE SURETY, WHO HAD PAID OUT $350,000 TO DISCHARGE DEBTS COVERED BY THE DEFAULTING CONTRACTOR'S PAYMENT BOND, TO HAVE A BETTER RIGHT TO PERCENTAGES RETAINED BY THE GOVERNMENT UNDER THE CONTRACT THAN THE CONTRACTOR'S TRUSTEE IN BANKRUPTCY. THERE IS DICTUM IN THE DECISION, BASED ON PRAIRIE STATE BANK V. UNITED STATES, 164 U.S. 227 (1896) AND HENNINGSEN V. UNITED STATES FIDELITY AND GUARANTY COMPANY, 208 U.S. 404 (1908), TO THE EFFECT THAT THE RIGHT OF A SURETY WHO HAS BEEN COMPELLED TO DISCHARGE THE PRINCIPAL-CONTRACTOR'S DEBTS FOR LABOR AND MATERIALS TO THE RETAINED PERCENTAGES IN THE HANDS OF THE OWNER IS SUPERIOR TO THE RIGHT OF AN ASSIGNEE OF THE CONTRACT PROCEEDS.
THERE IS NOTHING IN THE RECORD ACCOMPANYING YOUR LETTER TO SHOW WHETHER AND TO WHAT EXTENT THE ASSIGNEE IS STILL OWNED MONEY BY THE CONTRACTOR. CF. 37 COMP. GEN. 318, 321. NEITHER ARE WE ADVISED WHETHER THE GOVERNMENT ITSELF HAS CLAIMS UPON THE BALANCE OF THE CONTRACT PROCEEDS. FURTHER, IT HAS BEEN OUR CONSISTENT POSITION THAT ANY PRIORITY TO PAYMENT WHICH A PAYMENT BOND SURETY MAY HAVE OVER OTHER CLAIMANTS IS DEPENDENT UPON THE PRIOR DISCHARGE OF ALL THE CLAIMS OF LABORERS AND MATERIALMEN, IN THIS CASE TOTALING MORE THAN $42,000. SEE B-142060, JUNE 25, 1964, AND CASES THERE CITED. ONLY $17,087.63 HAS BEEN PAID INTO COURT IN FULL SATISFACTION OF THE SURETY'S OBLIGATION UNDER THE PAYMENT BOND.
EVEN IF THE QUESTION OF PRIORITY OF RIGHT BETWEEN THE SURETY AND THE ASSIGNEE WERE SQUARELY PRESENTED BY THE RECORD, THE CASES ARE IN CONFLICT ON THE ISSUE. THE FOLLOWING CASES HOLD IN FAVOR OF THE ASSIGNEE: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. V. UNITED STATES, 304 F.2D 465 (1962); AMERICAN FIDELITY COMPANY V. NATIONAL CITY BANK OF EVANSVILLE, 266 F.2D 910 (1959); UNITED STATES CASUALTY COMPANY V. FIRST NATIONAL BANK OF COLUMBUS, 157 F.SUPP. 789 (1957); BANK OF ARIZONA V. NATIONAL SURETY CORPORATION, 237 F.2D 90 (1956); GENERAL CASUALTY CO. V. SECOND NAT. BANK OF HOUSTON, 178 F.2D 679 (1950); COCONUT GROVE EXCHANGE BANK V. THE NEW AMSTERDAM CASUALTY CO., 149 F.2D 73 (1945); CALIFORNIA BANK V. UNITED STATES FIDELITY AND GUARANTY CO., 129 F.2D 751 (1942). THE FOLLOWING CASES HOLD FOR THE SURETY: NATIONAL SURETY CORPORATION V. UNITED STATES, ET AL., 132 CT.CL. 724 (1955); AND ROYAL INDEMNITY CO. V. UNITED STATES, 93 F.SUPP. 891 (1950).
IN VIEW OF THE ABOVE, AFTER FIRST SATISFYING THE GOVERNMENT'S CLAIMS, IF ANY, WHICH ARE PROPERLY FOR SET-OFF AGAINST THE AMOUNT AT ISSUE, THE DEPARTMENT OF AGRICULTURE SHOULD REQUEST THE DEPARTMENT OF JUSTICE TO PETITION FOR INTERVENTION UNDER RULE 24 (B) (3), 28 U.S.C.A. PAGE 216, IN THE PRESENT INTERPLEADER PROCEEDING BROUGHT BY THE SURETY, SO THAT THE FINAL PAYMENT UNDER THE CONTRACT CAN BE PAID INTO COURT AND DISPOSED OF IN ACCORDANCE WITH THE COURT'S JUDGMENT. PENDING SUCH JUDGMENT PAYMENT SHOULD BE WITHHELD FROM BOTH THE SURETY AND THE ASSIGNEE. CF. 33 COMP. GEN. 608. MEANWHILE, THE VOUCHER AND SUPPORTING PAPERS WILL BE RETAINED BY OUR OFFICE.