B-159320, JUL. 7, 1966

B-159320, JUL. 7, 1966

TO ACCOUNTING AND FINANCE OFFICER, EDWARDS AIR FORCE BASE, CALIFORNIA:

BY LETTER OF MAY 27, 1966, THE DIRECTORATE OF ACCOUNTING AND FINANCE FORWARDED YOUR REQUEST FOR AN ADVANCE DECISION AS TO THE DISPOSITION WHICH SHOULD BE MADE OF THE AMOUNT DUE UNDER CONTRACT AF 04/611/-10704 WITH WESTERN HYDRO ENGINEERING, INC., IN VIEW OF THE NUMBER OF CLAIMS WHICH HAVE BEEN MADE AGAINST THE AMOUNT BY VARIOUS CLAIMANTS.

THE CONTRACT WAS FOR THE OVERHAUL OF A DIESEL ENGINE. THE $4,780 CONTRACT PRICE WAS INCREASED BY AMENDMENTS TO $6,008.44, WHICH AMOUNT HAS NOW BEEN DETERMINED TO BE PAYABLE ON ACCOUNT OF THE WORK PERFORMED. IT IS REPORTED THAT DURING THE PERFORMANCE OF THE CONTRACT, THE CONTRACTOR CEASED OPERATING AS A CORPORATION, ALTHOUGH NOT DECLARED DISSOLVED OR IN RECEIVERSHIP, AND ASSIGNED THE CONTRACT TO ITS SECRETARY-TREASURER, WILLIAM D. SANFORD. THE NOTARIZED ASSIGNMENT DOCUMENT READS AS FOLLOWS:

"WESTERN HYDRO ENGINEERING, INC., HEREBY TRANSFERS, ASSIGNS AND CONVEYS ALL OF ITS RIGHT, TITLE AND INTEREST IN AND TO THE CERTAIN CONTRACT BETWEEN WESTERN HYDRO ENGINEERING, INC. AND EDWARDS AIR FORCE BASE, KNOWN AND DESCRIBED AS CONTRACT NO. AF 04/611/-10704 TO WILLIAM D. SANFORD, INDIVIDUALLY ON THE DATE ABOVE WRITTEN.

WESTERN HYDRO ENGINEERING, INC.

BY (S) WILLIAM D. SANFORD

WILLIAM D. SANFORD

BY (S) MILLIE COOK

MILLIE COOK"

MR. SANFORD COMPLETED THE CONTRACT AND REQUESTED THAT $6,008.44 BE PAID TO HIM. THERE HAS ALSO BEEN RECEIVED FROM KEEN INVESTMENT COMPANY, HOLDER OF AN ACCOUNT RECEIVABLE FROM WESTERN HYDRO, A CLAIM FOR $4,780, THE AMOUNT OF THE ACCOUNT RECEIVABLE AND THE ORIGINAL CONTRACT PRICE. SUPPORT OF THE CLAIM, KEEN INVESTMENT COMPANY PRESENTED A XEROX COPY OF A SCHEDULE OF ACCOUNTS INCLUDING AN INDEBTEDNESS OF $4,780 AS A RESULT OF CONTRACT AF 04/611/-10704. AT THE BOTTOM OF THE SCHEDULE THERE APPEARS A STATEMENT AS FOLLOWS:

"FOR AND IN CONSIDERATION OF PAYMENT OF $1.00 AND OTHER GOOD AND VALUABLE CONSIDERATIONS, THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, PURSUANT TO TERMS OF AN EXISTING CONTRACT BY AND BETWEEN THE UNDERSIGNED AND KEEN INVESTMENT CO., THE CONDITIONS, REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF WHICH, ARE MADE A PART OF THIS SALE AND ASSIGNMENT AND INCORPORATED HEREUNTO, THE UNDERSIGNED HEREBY SELLS, TRANSFERS, AND ASSIGNS TO KEEN INVESTMENT CO., ITS SUCCESSORS OR ASSIGNS, ALL OF THE RIGHT, TITLE AND INTEREST OF THE UNDERSIGNED IN AND TO THE ACCOUNTS RECEIVABLE, NOTES, TRADE ACCEPTANCES, MERCHANDISE AND/OR OTHER EVIDENCE OF INDEBTEDNESS ABOVE NAMED AND HEREIN CERTIFIED, INCLUDING ALL MONIES DUE TO OR TO BECOME DUE UPON THE SAME.'

THE STATEMENT IS SIGNED BY WAYNE W. DOUGHERTY AS VICE PRESIDENT OF WESTERN HYDRO. IN ADDITION, WILLIAM J. WRIGHT, A RECEIVER FOR THE SMALL BUSINESS ADMINISTRATION (SBA), HAS REQUESTED PAYMENT OF A JUDGMENT ISSUED BY THE SUPERIOR COURT OF THE STATE OF CALIFORNIA AGAINST WESTERN HYDRO AND WILLIAM SANFORD IN THE AMOUNT OF $4,080 FOR PREMISES IN THE CUSTODY OF SBA OCCUPIED FOR ABOUT 9 MONTHS. ALSO, THE INTERNAL REVENUE SERVICE (IRS) HAS FILED A NOTICE OF LEVY FOR $1,949.36 REPRESENTING UNPAID TAXES. THE STATE OF CALIFORNIA EMPLOYMENT RELATIONS AGENCY HAS PRESENTED A CLAIM FOR $3,276.27 BOTH AS AN EXISTING AND PROSPECTIVE LEGAL ASSIGNEE FOR UNPAID WAGES TO EMPLOYEES OF WESTERN HYDRO AND FOR $777.78 FOR UNPAID UNEMPLOYMENT INSURANCE TAX.

THE CONTRACT WITH WESTERN HYDRO CONTAINS A "NO-SET-OFF" PROVISION IN THE ASSIGNMENT OF CLAIMS CLAUSE. UNDER THE "NO-SET-OF" PROVISION, THE GOVERNMENT IS SPECIFICALLY PRECLUDED FROM SETTING OFF CERTAIN ITEMS ENUMERATED IN THE ASSIGNMENT OF CLAIMS ACT OF 1940, 31 U.S.C. 203 AND 41 U.S.C. 15. HOWEVER, AN ASSIGNMENT DOES NOT EXTINGUISH THE RIGHTS OF THE GOVERNMENT ACQUIRED BY THE TERMS OF THE CONTRACT. 35 COMP. GEN. 149. THE WALSH-HEALEY ACT, 41 U.S.C. 35, A LABOR STANDARDS ACT, DOES NOT APPLY TO THE CONTRACT BECAUSE IT IS FOR LESS THAN $10,000, BUT ONE OF THE CONDITIONS OF THE CONTRACT IS THAT LABORERS AND MECHANICS EMPLOYED UPON THE WORK SHALL BE PAID TIME-AND-A-HALF AS OVERTIME COMPENSATION AS REQUIRED BY THE WORK HOURS ACT OF 1962, 40 U.S.C. 327, AND THAT IF UNPAID IN THAT REGARD THE CONTRACTING OFFICER MAY WITHHOLD MONEY TO ACCOMPLISH THAT PURPOSE. MOREOVER, PENALTIES, WHICH CAN ALSO BE WITHHELD, ARE PROVIDED IN THE CONTRACT FOR DISREGARDING THE OVERTIME REQUIREMENTS. THE DISPOSITION OF THE SUMS WITHHELD FOR THE LABORERS AND MECHANICS IS REQUIRED TO BE MADE BY OUR OFFICE. 40 U.S.C. 330 (A). NO CLAIM IS MADE NOR IS THERE ANY INFORMATION IN THE PAPERS FURNISHED WITH THE REQUEST FOR A DECISION THAT THERE WERE ANY VIOLATIONS OF THE OVERTIME PROVISIONS. THEREFORE, IT IS NOT NECESSARY TO CONSIDER WHETHER ANY PART OF THE CONTRACT FUNDS SHOULD BE WITHHELD FOR THE EMPLOYEES AND IT IS NOT NECESSARY TO CONSIDER THE STANDING OF THE STATE OF CALIFORNIA AS THEIR ASSIGNEE.

THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, PROVIDES THAT THE MONEYS DUE OR TO BECOME DUE UNDER A CONTRACT REQUIRING PAYMENTS AGGREGATING $1,000 OR MORE CAN ONLY BE VALIDLY ASSIGNED IF THE ASSIGNMENT IS TO A "BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION.' WILLIAM SANFORD OBVIOUSLY DOES NOT QUALIFY AS ANY ONE OF THE TYPES OF ASSIGNEES DESIGNATED IN THE ACT.

ON THE OTHER HAND, INFORMATION FURNISHED WITH YOUR REQUEST FOR A DECISION INDICATES THAT KEEN INVESTMENT COMPANY IS A SHORT TERM BUSINESS CREDIT INSTITUTION AND IS GENERALLY REGARDED AS A FACTOR. FACTORS ARE REGARDED AS "FINANCING INSTITUTIONS.' 36 COMP. GEN. 19; 31 ID. 90. THEREFORE, KEEN INVESTMENT COMPANY MAY BE RECOGNIZED AS A PROPER ASSIGNEE. THE ASSIGNEE'S ENTITLEMENT TO THE CONTRACT PROCEEDS IS LIMITED BY THE AMOUNT OF THE ASSIGNOR'S INDEBTEDNESS TO THE ASSIGNEE. 37 COMP. GEN. 9; 36 ID. 19; 35 ID. 104. SINCE THE ASSIGNEE HAS NOT CLAIMED ANY MORE THAN THE AMOUNT OF THE ASSIGNOR'S INDEBTEDNESS TO IT THE SUM OF $4,780 PROPERLY SHOULD BE PAID TO THE KEEN INVESTMENT COMPANY.

SINCE THE BALANCE OF THE MONEY WILL NOT BE SUFFICIENT TO COVER BOTH THE CLAIM FOR SBA AND IRS, THERE REMAINS FOR CONSIDERATION A QUESTION AS TO WHICH SHOULD HAVE PRIORITY TO THE REMAINING MONEY. SECTIONS 6321 AND 6322 OF TITLE 26, U.S.C. PROVIDE THAT THE FAILURE TO PAY UPON DEMAND ANY TAX DUE CREATES A LIEN IN FAVOR OF THE UNITED STATES UPON ALL PROPERTY AND RIGHTS TO PROPERTY, WHETHER REAL OR PERSONAL, BELONGING TO THE TAXPAYER, SUCH LIEN ARISING GENERALLY AT THE TIME OF THE TAX ASSESSMENT. HOWEVER, SECTION 6323 PROVIDES THAT THE LIEN IMPOSED BY SECTION 6321 SHALL NOT BE VALID AGAINST A JUDGMENT CREDITOR UNTIL NOTICE OF THE LIEN HAS BEEN FILED. THE COPY OF THE IRS NOTICE OF LEVY FURNISHED WITH YOUR LETTER SHOWS THAT TWO ASSESSMENTS WERE MADE AGAINST WESTERN HYDRO IN OCTOBER 1965. THE JUDGMENT OBTAINED BY THE RECEIVER FOR SBA IS DATED NOVEMBER 24, 1965. NO INFORMATION HAS BEEN FURNISHED AS TO WHETHER IRS FILED A NOTICE OF LIEN. EVIDENCE OF THE DATE OF FILING OF THE NOTICE OF LIEN IN THE MANNER PRESCRIBED BY SECTION 6323 SHOULD BE OBTAINED FROM IRS. IF IT DEVELOPS THAT NOTICE WAS FILED BEFORE THE JUDGMENT WAS OBTAINED, IRS SHOULD BE GIVEN FIRST PRIORITY. IF IT DEVELOPS THAT NO NOTICE WAS FILED OR WAS FILED AFTER THE DATE OF THE JUDGMENT, THE JUDGMENT SHOULD RECEIVE PRIORITY.

AS A MATTER OF MUTUAL ACCOUNTING, THE GOVERNMENT IS ENTITLED TO PROTECT ITS OWN INTERESTS BEFORE THE INTERESTS OF OTHERS TO THE EXTENT THAT IT IS LEGALLY ABLE. UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234. THEREFORE, SINCE AFTER SATISFACTION OF THE GOVERNMENT'S INTEREST, THERE ARE NO FURTHER FUNDS AVAILABLE, WHETHER THE STATE OF CALIFORNIA SHOULD BE PAID BY THE GOVERNMENT FOR UNPAID UNEMPLOYMENT INSURANCE TAX IS ACADEMIC.