B-158451, MAR. 3, 1966

B-158451: Mar 3, 1966

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FEDERAL AVIATION AGENCY: REFERENCE IS MADE TO YOUR LETTER OF JANUARY 14. THE CONTRACT AS ORIGINALLY AWARDED WAS IN THE AMOUNT OF $111. SHORTLY AFTER THE CONTRACT WORK WAS COMPLETED. ADVANCE ELECTRIC COMPANY WAS DECLARED BANKRUPT. 735.17 IS YET TO BE PAID FOR WORK PERFORMED. MULTIPLE CLAIMANTS HAVE REQUESTED THAT THE UNPAID BALANCE DUE UNDER THE CONTRACT BE PAID TO THEM. WERE MAILED TO THE BONDING COMPANY'S ADDRESS IN DALLAS AS REQUESTED ALTHOUGH THE CHECKS WERE STILL MADE PAYABLE TO THE CONTRACTOR. AN "ASSIGNMENT OF ACCOUNTS" WAS ENTERED INTO BETWEEN THE ADVANCE ELECTRIC COMPANY AND THE SOUTH FORT WORTH STATE BANK OF FORT WORTH. UNDER THE TERMS OF THE ASSIGNMENT WHICH WAS RECORDED IN TARRANT COUNTY.

B-158451, MAR. 3, 1966

TO AUTHORIZED CERTIFYING OFFICER THROUGH ACTING CHIEF, ACCOUNTING PROGRAMS DIVISION OFFICE OF MANAGEMENT SERVICES, FEDERAL AVIATION AGENCY:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 14, 1966, WITH ENCLOSURES, REQUESTING DECISION RELATIVE TO FINAL PAYMENT OF $13,735.17 UNDER CONTRACT FA2-1929 DATED FEBRUARY 1, 1961, WITH ADVANCE ELECTRIC COMPANY. THE CONTRACT AS ORIGINALLY AWARDED WAS IN THE AMOUNT OF $111,682.90. SHORTLY AFTER THE CONTRACT WORK WAS COMPLETED, AND AFTER THE CONTRACTOR HAD RECEIVED PAYMENTS TOTALING $106,080.09, ADVANCE ELECTRIC COMPANY WAS DECLARED BANKRUPT, AND THE COURT APPOINTED A RECEIVER IN BANKRUPTCY TO CLOSE OUT THE AFFAIRS OF THE COMPANY. IT HAS BEEN DETERMINED THAT THE SUM OF $13,735.17 IS YET TO BE PAID FOR WORK PERFORMED. MULTIPLE CLAIMANTS HAVE REQUESTED THAT THE UNPAID BALANCE DUE UNDER THE CONTRACT BE PAID TO THEM.

THE RECORD DISCLOSES THAT PRIOR TO AWARD OF THE CONTRACT, GLOBE INDEMNITY COMPANY HAD UNDERWRITTEN A PAYMENT BOND IN THE PENAL SUM OF $53,275.65. BY LETTER DATED APRIL 25, 1962, APPROXIMATELY EIGHT MONTHS PRIOR TO THE APPOINTMENT OF A RECEIVER IN BANKRUPTCY, THE CONTRACTOR REQUESTED THE CONTRACTING OFFICER TO MAIL ALL FURTHER CHECKS FOR WORK PERFORMED UNDER THE CONTRACT TO MR. H. C. WATSON, GLOBE INDEMNITY COMPANY, DALLAS, TEXAS. PROGRESS PAYMENTS 7 AND 8, IN THE AMOUNT OF $18,726.50, WERE MAILED TO THE BONDING COMPANY'S ADDRESS IN DALLAS AS REQUESTED ALTHOUGH THE CHECKS WERE STILL MADE PAYABLE TO THE CONTRACTOR. ON JANUARY 21, 1963, THE ROYAL GLOBE INSURANCE COMPANIES, ON BEHALF OF GLOBE INDEMNITY COMPANY, WROTE THE CONTRACTING OFFICER ASSERTING ITS CLAIM TO THE UNPAID BALANCE ON PAYMENT FOR LOSSES SUFFERED BY THE BONDING COMPANY.

THE REFEREE IN BANKRUPTCY FIRST ASSERTED HIS CLAIM TO THE UNPAID BALANCE UNDER THE CONTRACT ON JANUARY 3, 1963, BY A TELEPHONE CONVERSATION WITH THE CONTRACTING OFFICER. ON AUGUST 8, 1963, FOLLOWING MANY CONFERENCES BETWEEN REPRESENTATIVES OF THE BONDING COMPANY AND THE RECEIVER IN BANKRUPTCY, THE LATTER EXECUTED A DISCLAIMER TO ANY REMAINING FUNDS DUE UNDER THE CONTRACT. THE COURT HAS SINCE CLOSED ITS BOOKS ON THE CASE OF DELBERT KIMZIE BEENE, D/B/A ADVANCE ELECTRIC COMPANY.

AN "ASSIGNMENT OF ACCOUNTS" WAS ENTERED INTO BETWEEN THE ADVANCE ELECTRIC COMPANY AND THE SOUTH FORT WORTH STATE BANK OF FORT WORTH, TEXAS, ON FEBRUARY 3, 1961. UNDER THE TERMS OF THE ASSIGNMENT WHICH WAS RECORDED IN TARRANT COUNTY, TEXAS, ON FEBRUARY 7, 1961, THE CONTRACTOR WAS BOUND TO SURRENDER TO THE BANK ANY PAYMENTS RECEIVED FROM THE GOVERNMENT UNDER THE CONTRACT. HOWEVER, THE ASSIGNMENT CONTAINED NO DIRECTION TO THE GOVERNMENT TO MAKE PAYMENT TO THE BANK. THE CONTRACT WHICH CONTAINED A "NO SETOFF CLAUSE" PROVIDED FOR ASSIGNMENT OF CLAIMS PURSUANT TO THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, 41 U.S.C. 15. THE ACT PROVIDES THAT IN THE EVENT OF ANY SUCH ASSIGNMENT, THE ASSIGNEE THEREOF SHALL FILE WRITTEN NOTICE OF THE ASSIGNMENT TOGETHER WITH A TRUE COPY OF THE INSTRUMENT OF ASSIGNMENT WITH (A) THE CONTRACTING OFFICER OR THE HEAD OF HIS DEPARTMENT OR AGENCY; (B) THE SURETY OR SURETIES UPON THE BOND OR BONDS, IF ANY, IN CONNECTION WITH SUCH CONTRACT; AND (C) THE DISBURSING OFFICER, IF ANY, DESIGNATED IN SUCH CONTRACT TO MAKE PAYMENT. THE RECORD INDICATES THAT BY LETTER DATED AUGUST 12, 1963, ATTORNEYS FOR THE SOUTH FORT WORTH STATE BANK OF FORT WORTH, TEXAS, NOTIFIED THE GENERAL ACCOUNTING OFFICE THAT THE BANK HELD AN ASSIGNMENT OF FUNDS DUE UNDER CONTRACT FA2-1929. THIS LETTER WAS REFERRED TO THE FEDERAL AVIATION AGENCY BY THE GENERAL ACCOUNTING OFFICE. HOWEVER, IT WAS NOT UNTIL OCTOBER 12, 1964, SOME THREE AND ONE-HALF YEARS AFTER EXECUTION OF THE ASSIGNMENT, THAT THE BANK NOTIFIED THE CONTRACTING OFFICER OF THE ASSIGNMENT. THE RECORD DOES NOT INDICATE WHETHER THE BANK NOTIFIED THE SURETY OR DISBURSING OFFICER OF THE ASSIGNMENT AS REQUIRED UNDER THE ASSIGNMENT OF CLAIMS ACT.

ON OCTOBER 8, 1964, THE INTERNAL REVENUE SERVICE SERVED A NOTICE OF LEVY DATED OCTOBER 8, 1964, ON THE FEDERAL AVIATION AGENCY, FORT WORTH, TEXAS, SETTING FORTH THAT UNPAID WITHHOLDING AND UNEMPLOYMENT TAXES PLUS STATUTORY ADDITIONS WERE THEN DUE AND OWING TO THE UNITED STATES FROM D. K. BEENE D/B/A ADVANCE ELECTRIC COMPANY IN THE FOLLOWING AMOUNTS:

CHART

PERIOD WITHHOLDING ASSESSMENT DATE AMOUNT

4TH QTR. 1962 WITHHOLDING 1/25/63 $7,839.53

4/62 DR PEN WITHHOLDING 5/3/63 141.84

1962 FUTA 1/25/63 15.52

1962 FUTA 8/23/64 2,545.44

$10,542.33

IN OUR OPINION, THE ASSIGNMENT WAS NOT BINDING UPON THE UNITED STATES AT LEAST UNTIL OCTOBER 12, 1964, AT WHICH TIME THE ASSIGNEE BANK NOTIFIED THE CONTRACTING OFFICER OF THE ASSIGNMENT.

DEBTS OWED TO THE UNITED STATES BY THE ASSIGNOR WHICH EXISTED BEFORE NOTICE OF THE ASSIGNMENT WAS GIVEN THE OBLIGOR MAY BE SET OFF AGAINST MATURE OBLIGATIONS OWED BY THE GOVERNMENT TO THE ASSIGNOR. 37 COMP. GEN. 808. IN THIS CASE THE WITHHOLDING TAX OBLIGATION FOR THE FOURTH QUARTER OF 1962 AND THE FEDERAL UNEMPLOYMENT TAX OBLIGATION FOR THE YEAR 1962 WERE CLAIMS EXISTING AT THE TIME NOTICE OF ASSIGNMENT WAS RECEIVED BY THE CONTRACTING OFFICER. THE GOVERNMENT'S RIGHT TO COLLECT THE CONTRACTOR'S TAX DEBT BY SETOFF AGAINST THE CONTRACT FUND IS ALSO SUPERIOR TO THE SURETY'S RIGHT THERETO BY SUBROGATION. STANDARD ACCIDENT INSURANCE COMPANY V. UNITED STATES, 119 CT.CL. 749 (1951). SEE ALSO UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73 (1920); 40 COMP. GEN. 85, 87. VIEW THEREOF, THE INTERNAL REVENUE SERVICE IS ENTITLED TO THE AMOUNT OF $10,542.33 PLUS ANY ADDITIONAL INTEREST DUE FROM OCTOBER 8, 1964.

THE GOVERNMENT IS A MERE STAKEHOLDER AS TO THE BALANCE OF THE FUNDS. HAS BEEN HELD THAT THE RIGHTS OF A SURETY ON A PERFORMANCE BOND FOR COMPLETING A CONTRACT ARE SUPERIOR TO THE RIGHTS OF A BANK AS THE CONTRACTOR'S ASSIGNEE. NATIONAL SURETY CORPORATION V. UNITED STATES, 132 CT.CL. 724 (1955). HOWEVER, AS BETWEEN THE RIGHTS OF A SURETY ON A PAYMENT BOND AND THE RIGHTS OF A CONTRACTOR'S ASSIGNEE THE COURTS ARE NOT IN AGREEMENT. COMPARE COCONUT GROVE EXCHANGE BANK V. AMSTERDAM CASUALTY CO., 149 F.2D 73 (5TH CIR. 1945), AND GENERAL CASUALTY CO. OF AMERICA V. SECOND NATIONAL BANK OF HOUSTON, 178 F.2D 679 (5TH CIR. 1949), WITH ROYAL INDEMNITY COMPANY V. UNITED STATES, 117 CT.CL. 736 (1950), AND NATIONAL SURETY CORPORATION V. UNITED STATES, SUPRA. WE NOTE THAT THE COCONUT GROVE AND GENERAL CASUALTY CASES, SUPRA, GAVE PRIORITY TO THE RIGHTS OF AN ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, OVER THE RIGHTS OF THE SURETY ON THE PAYMENT BOND, WHILE THE ROYAL INDEMNITY AND NATIONAL SURETY CASES, SUPRA, GAVE PRIORITY TO THE RIGHTS OF THE SURETY ON THE PAYMENT BOND OVER THE RIGHTS OF THE ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940. IN THIS REGARD THE NATIONAL SURETY CASE, SUPRA, SPECIFICALLY RECOGNIZES THAT THE FIFTH CIRCUIT TAKES THE CONTRARY VIEW IN THE COCONUT GROVE AND GENERAL CASUALTY CASES, SUPRA, IN SITUATIONS INVOLVING THE RIGHTS OF A SURETY UNDER A PAYMENT BOND AND THE RIGHTS OF AN ASSIGNEE BANK.

MOREOVER, AN ADMINISTRATIVE DETERMINATION REGARDING THE VALIDITY OF THE ASSIGNMENT WOULD NOT BE RES JUDICATA, AND THE RECORD DOES NOT INDICATE WHETHER THE SURETY HAS SATISFIED ALL CLAIMS FOR LABOR AND MATERIAL WHICH IS A USUAL PREREQUISITE TO THE RIGHT OF SUBROGATION UNDER THE PAYMENT BOND. SEE UNITED STATES V. NATIONAL SURETY COMPANY, SUPRA, AND AMERICAN SURETY COMPANY V. WESTINGHOUSE ELECTRIC CO., 296 U.S. 133 (1935). THEREFORE, IN VIEW OF THE DISAGREEMENT BY THE COURTS REGARDING THE RIGHTS OF A SURETY UNDER A PAYMENT BOND AGAINST THOSE OF AN ASSIGNEE BANK, IT WOULD NOT BE POSSIBLE TO CONCLUSIVELY ADJUDICATE THE RIGHTS OF ALL PARTIES. SINCE THE ASCERTAINMENT OF THE FACTS REGARDING THESE ISSUES IS PROPERLY FOR DETERMINATION BY A COURT, THE GOVERNMENT MIGHT BE SUBJECTED TO DOUBLE LIABILITY IF PAYMENT WERE MADE TO EITHER THE SURETY OR ASSIGNEE. IN THESE CIRCUMSTANCES, PAYMENT OF THE AMOUNT REMAINING AFTER ALLOWANCE OF THE CLAIM OF THE INTERNAL REVENUE SERVICE SHOULD NOT BE MADE TO EITHER THE ASSIGNEE OR THE SURETY EXCEPT PURSUANT TO AGREEMENT BY THE PARTIES OR PURSUANT TO AN ORDER OF A COURT OF COMPETENT JURISDICTION. 157892, DECEMBER 17, 1965; 33 COMP. GEN. 608.