B-163427, MAR. 1, 1968

B-163427: Mar 1, 1968

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SINCE DETERMINATION IS THE HOME INDEMNITY CO. THAT SURETY WAS ENTITLED TO PAYMENT AS SUBROGEE BY REASON OF PAYMENT OF ALL CLAIMS UNDER PAYMENT BOND DOES NOT AUTOMATICALLY REQUIRE PAYMENT. PAYMENT IN INSTANT CASE IS FOR JUDICIAL COGNIZANCE AND NOT COMP. BATCHELDER AND LUTHER: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED DECEMBER 21. HARTFORD ACCIDENT AND INDEMNITY COMPANY (HEREAFTER REFERRED TO AS HARTFORD) WAS THE SURETY ON THE PERFORMANCE AND PAYMENT BONDS EXECUTED BY THE PRIME CONTRACTOR. FARINA WAS IN DEFAULT. AFTER COMPLETION COSTS WERE DEDUCTED. THE CONTRACTOR WAS ADJUDICATED A BANKRUPT. HARTFORD'S CLAIM TO THE UNPAID BALANCE IS BASED UPON PAYMENT OF $15. THERE IS NO EVIDENCE THAT ANY LIABILITY AROSE UNDER THE PERFORMANCE BOND AND THE FACTS SHOW THAT ALL ALLEGED CLAIMS UNDER THE PAYMENT BOND MAY NOT HAVE BEEN SATISFIED.

B-163427, MAR. 1, 1968

CONTRACTS - PAYMENTS - COMPLETING SURETY DECISION ON BEHALF OF HARTFORD ACCIDENT AND INDEMNITY COMPANY FOR UNPAID BALANCE AS COMPLETING SURETY UNDER DEFAULTED CONTRACT WITH ARMY CORPS OF ENGINEERS. IN ABSENCE OF EVIDENCE THAT CLAIM OF SURETY AROSE UNDER PERFORMANCE BOND AND THAT ALL CLAIMS UNDER PAYMENT BOND HAS BEEN SATISFIED, SURETY'S ENTITLEMENT TO UNPAID CONTRACT BALANCE AS SUBROGEE MUST AWAIT AGREEMENT OR APPROPRIATE COURT ORDER. SINCE DETERMINATION IS THE HOME INDEMNITY CO. V U.S., CT. CL. NO. 29-66, DECIDED MAY 12, 1967, THAT SURETY WAS ENTITLED TO PAYMENT AS SUBROGEE BY REASON OF PAYMENT OF ALL CLAIMS UNDER PAYMENT BOND DOES NOT AUTOMATICALLY REQUIRE PAYMENT, PAYMENT IN INSTANT CASE IS FOR JUDICIAL COGNIZANCE AND NOT COMP. GEN. B 155504, NOV. 16, 1965 AND JULY 8, 1966; B-150606, MARCH 7, 1963.

TO PEABODY, ARNOLD, BATCHELDER AND LUTHER:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED DECEMBER 21, 1967, PRESENTING ON BEHALF OF YOUR CLIENT, HARTFORD ACCIDENT AND INDEMNITY COMPANY, A CLAIM FOR THE UNPAID BALANCE OF $5,697.40 UNDER CONTRACT NO. DA -19-016-ENC-7549 AWARDED BY THE DEPARTMENT OF THE ARMY, CORPS OF ENGINEERS, DATED APRIL 10, 1962.

HARTFORD ACCIDENT AND INDEMNITY COMPANY (HEREAFTER REFERRED TO AS HARTFORD) WAS THE SURETY ON THE PERFORMANCE AND PAYMENT BONDS EXECUTED BY THE PRIME CONTRACTOR, FARINA CONSTRUCTION CORPORATION, UNDER THE CONTRACT. IN SEPTEMBER 1964, FARINA WAS IN DEFAULT. ON NOVEMBER 14, 1964, THE CORPS OF ENGINEERS TOOK OVER COMPLETION OF THE CONTRACT. ON MAY 20, 1965, AFTER COMPLETION COSTS WERE DEDUCTED, AN UNPAID BALANCE OF $5,697.40 REMAINED. FURTHER, ON SEPTEMBER 10, 1965, THE CONTRACTOR WAS ADJUDICATED A BANKRUPT.

HARTFORD'S CLAIM TO THE UNPAID BALANCE IS BASED UPON PAYMENT OF $15,325.93 UNDER ITS PAYMENT BOND, RESULTING FROM THE DEFAULT BY FARINA. THERE IS NO EVIDENCE THAT ANY LIABILITY AROSE UNDER THE PERFORMANCE BOND AND THE FACTS SHOW THAT ALL ALLEGED CLAIMS UNDER THE PAYMENT BOND MAY NOT HAVE BEEN SATISFIED. ONE SUCH CLAIM FOR $19,445.99 IS THE SUBJECT MATTER OF CIVIL PETITION NO. 66-596-J, UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF EDWARD DEGROOT, INC. V FARINA CONSTRUCTION CORPORATION AND HARTFORD ACCIDENT AND INDEMNITY COMPANY, IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. THE CONTRACTOR, FARINA, APPARENTLY CLAIMED THE UNPAID BALANCE IN NOVEMBER 1964. YOU CONTEND THAT HARTFORD IS ENTITLED TO THE UNPAID BALANCE UNDER THE GENERAL PRINCIPLES OF SURETYSHIP LAW AND AS SUBROGEE TO THE GOVERNMENT'S RIGHTS AGAINST FARINA.

THIS OFFICE RECOGNIZES THE EQUITABLE RIGHT OF A SURETY TO THE UNPAID BALANCE WHEN IN ACCORDANCE WITH THE PRINCIPLES SET FORTH IN THE PRAIRIE STATE BANK AND PEARLMAN CASES, CITED BY YOU, THE SURETY HAS FULLY SATISFIED ALL CLAIMS AGAINST THE CONTRACTOR UNDER THE PAYMENT BOND. THE PRESENT INSTANCE THERE REMAINS THE QUESTION OF FACT WHETHER THE SURETY HAS PAID ALL CLAIMS SO AS TO BE ENTITLED TO THE EQUITABLE RIGHT OF SUBROGATION. CIVIL ACTION NO. 66-596-J IS EVIDENCE THAT THIS FACTUAL DISPUTE REMAINS UNRESOLVED.

MOREOVER, WE UNDERSTAND THE RECENT DECISION IN THE HOME INDEMNITY COMPANY V UNITED STATES, UNITED STATES COURT OF CLAIMS NO. 29-66, DECIDED MAY 12, 1967, TO STAND ONLY FOR THE PROPOSITION THAT PAYMENT OF THE UNPAID BALANCE TO THE CONTRACTOR WHO SUCCESSFULLY PERFORMS THE WORK MAY SUBJECT THE GOVERNMENT TO DOUBLE LIABILITY WHERE PRIOR TO PAYMENT THE SURETY HAS NOTIFIED THE CONTRACTING OFFICER OF CLAIMS UNDER THE PAYMENT BOND. WE DO NOT UNDERSTAND THAT CASE TO REQUIRE PAYMENT TO THE SURETY AUTOMATICALLY WHENEVER IT NOTIFIES THE CONTRACTING OFFICER OF THE EXISTENCE, OR SATISFACTION, OF CLAIMS UNDER THE PAYMENT BOND. HERE, OUR OFFICE COULD NOT AUTHORIZE PAYMENT PURSUANT TO HOME INDEMNITY INASMUCH AS THAT CASE WAS BASED ON A JUDICIAL DETERMINATION THAT THE SURETY WAS IN FACT ENTITLED AS A SUBROGEE BY REASON OF ITS PAYMENT CLAIMS UNDER THE PAYMENT BOND. SUCH A DETERMINATION IS FOR JUDICIAL COGNIZANCE, AS IN HOME INDEMNITY, NOT BY THIS OFFICE, SINCE OUR DECISION WOULD NOT BE RES JUDICATA. SEE B 155504, NOVEMBER 16, 1965, AND JULY 8, 1966; B-150606, MARCH 7, 1963.

FOR THE ABOVE REASONS THIS OFFICE COULD AUTHORIZE PAYMENT TO YOUR CLIENT, HARTFORD ACCIDENT AND INDEMNITY COMPANY, ONLY PURSUANT TO AN AGREEMENT BETWEEN THE PARTIES OR AN APPROPRIATE COURT ORDER.