B-164138, NOV. 19, 1968

B-164138: Nov 19, 1968

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KNOTT: REFERENCE IS MADE TO A LETTER DATED JULY 13. IS AS FOLLOWS: "ON MARCH 4. WE HAVE BEEN INFORMED THAT A SUBSTANTIAL PART OF THE AMOUNTS RECEIVED BY RIGGS NATIONAL BANK WERE FOR PAYMENT TO AN ASSIGNEE OF A SUBCONTRACTOR. THE ASSIGNMENT WAS APPROVED BY GSA COUNSEL ON APRIL 12. THE AMOUNTS DUE UNDER TWO INVOICES WERE PAID TO THE CONTRACTOR INSTEAD OF THE ASSIGNEE. WAS PAID BY CHECK NO. 77549043 DATED JUNE 18. 899.53 WAS PAID BY CHECK NO. 78623079 DATED OCTOBER 6. 859.55 WERE PROPERLY PAID TO THE ASSIGNEE. WE HAVE MADE PAYMENT OF $27. WAS RETURNED BY THE POST OFFICE AS UNCLAIMED. WE ARE FURTHER ADVISED THAT THE SUM OF $27. 146.86 IS BEING HELD IN THE ESCROW ACCOUNT. THE PROCEEDS FROM THE ASSIGNMENT WERE TO BE DISBURSED THREE- FIFTHS TO VIRGINIA FIBRE CORPORATION WITH THE BALANCE TO D M CONTRACTORS.

B-164138, NOV. 19, 1968

TO MR. KNOTT:

REFERENCE IS MADE TO A LETTER DATED JULY 13, 1967, TO OUR CLAIMS DIVISION REQUESTING ASSISTANCE IN THE RECOVERY OF $27,146.86 ERRONEOUSLY PAID TO D M CONTRACTORS, LTD., UNDER CONTRACT NO. GS-00S 55014, THE PROCEEDS HAVING BEEN ASSIGNED TO THE RIGGS NATIONAL BANK (HEREAFTER REFERRED TO AS ASSIGNEE BANK).

A RESUME OF THE FACTS, AS REPORTED IN THE LETTER OF JULY 13, IS AS FOLLOWS:

"ON MARCH 4, 1965, GENERAL SERVICES ADMINISTRATION AWARDED CONTRACT NO. GS-00S-55014 TO D M CONTRACTORS, LTD., TO FURNISH LABOR AND MATERIALS FOR DRAPERIES AT THE TOTAL COST OF $53,690.95, LESS DISCOUNTS FOR PROMPT PAYMENT. ON APRIL 7, 1965, THE CONTRACTOR ASSIGNED ALL AMOUNTS DUE UNDER THE CONTRACT TO THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., TO BE APPLIED IN ACCORDANCE WITH THEIR AGREEMENT WITH THE BANK. WE HAVE BEEN INFORMED THAT A SUBSTANTIAL PART OF THE AMOUNTS RECEIVED BY RIGGS NATIONAL BANK WERE FOR PAYMENT TO AN ASSIGNEE OF A SUBCONTRACTOR, VIRGINIA FIBRE CORPORATION. THE ASSIGNMENT WAS APPROVED BY GSA COUNSEL ON APRIL 12, 1965.

"AS A RESULT OF CLERICAL ERRORS, THE AMOUNTS DUE UNDER TWO INVOICES WERE PAID TO THE CONTRACTOR INSTEAD OF THE ASSIGNEE. INVOICE NO. 66515 FOR $21,312.98, LESS 5 PERCENT DISCOUNT, OR $20,247.33, WAS PAID BY CHECK NO. 77549043 DATED JUNE 18, 1965, TO THE CONTRACTOR. ALSO, INVOICE NO. 86519 FOR $7,262.66, LESS 5 PERCENT DISCOUNT, OR $6,899.53 WAS PAID BY CHECK NO. 78623079 DATED OCTOBER 6, 1965, TO THE CONTRACTOR. THREE OTHER INVOICES FOR THE TOTAL NET AMOUNT OF $23,859.55 WERE PROPERLY PAID TO THE ASSIGNEE. THE VIRGINIA FIBRE CORPORATION MADE CLAIM AGAINST GSA EVEN THOUGH THEY HAD NO CONTRACTUAL RELATIONSHIP WITH GSA BECAUSE D M CONTRACTORS, LTD., DID NOT TURN THE PROCEEDS OF THE TWO CHECKS, TOTALING $27,146.86, TO RIGGS NATIONAL BANK. IN A MEETING WITH REPRESENTATIVES OF RIGGS NATIONAL BANK, WE INFORMALLY CONFIRMED THAT RIGGS NATIONAL BANK RECEIVED ONLY $23,859.55 ON THE D M CONTRACTORS, LTD., ASSIGNMENT ACCOUNT.

"ON THE RECOMMENDATION OF OUR REGIONAL COUNSEL, WE HAVE MADE PAYMENT OF $27,146.86 TO THE ASSIGNEE BY TREASURY CHECK NO. 85397078 DATED JUNE 12, 1967. WE PREVIOUSLY INSTITUTED ACTION TO COLLECT THE ERRONEOUS PAYMENTS FROM THE CONTRACTOR. A LETTER SENT TO THE CONTRACTOR BY REGISTERED MAIL, TO THEIR BUSINESS ADDRESS, WAS RETURNED BY THE POST OFFICE AS UNCLAIMED. WE THEN WROTE TO CLIFTON C. CAHALL, PRESIDENT, AT HIS HOME ADDRESS BY REGISTERED MAIL. THE DELIVERY RECEIPT SHOWS THE SIGNATURE OF ANOTHER PERSON. SO FAR, NO RESPONSE HAS BEEN RECEIVED. THE ENCLOSED COPIES OF DUN AND BRADSTREET REPORTS INDICATE FUTILE ATTEMPTS TO OBTAIN INFORMATION.'

SUBSEQUENTLY, BY LETTER DATED MARCH 11, 1968, THE ASSIGNEE BANK FURNISHED THIS OFFICE A COPY OF THE ESCROW AGREEMENT DATED MARCH 24, 1965, BETWEEN D M CONTRACTORS, LTD., AND THE ASSIGNEE BANK. WE ARE FURTHER ADVISED THAT THE SUM OF $27,146.86 IS BEING HELD IN THE ESCROW ACCOUNT. THE ESCROW AGREEMENT SETS FORTH PROVISIONS WHEREIN THE ASSIGNEE BANK, FOR A FIXED FEE OF $100, AGREES TO ACT AS ESCROW AGENT FOR D M CONTRACTORS, LTD., AND VIRGINIA FIBRE CORPORATION, A MATERIALMAN UNDER THE SUBJECT CONTRACT. SPECIFICALLY, THE PROCEEDS FROM THE ASSIGNMENT WERE TO BE DISBURSED THREE- FIFTHS TO VIRGINIA FIBRE CORPORATION WITH THE BALANCE TO D M CONTRACTORS. THE ASSIGNMENT DOES NOT SECURE ANY LOAN BY THE ASSIGNEE BANK TO THE D M CONTRACTORS. THE ASSIGNEE BANK HAD NO FINANCIAL INTEREST IN THE CONTRACTOR'S OPERATIONS UNDER THE CONTRACT; IS NOW AND ALWAYS HAS BEEN, WHOLE IN THIS MATTER; AND NOW HOLDS THE MONIES ONLY UNTIL IT CAN BE ABSOLVED OF ANY LIABILITY UNDER THE ESCROW AGREEMENT.

ESSENTIALLY, THEN, HERE INVOLVED IS THE VALIDITY UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED (31 U.S.C. 203), OF AN ASSIGNMENT OF MONIES DUE UNDER A GOVERNMENT SUPPLY CONTRACT TO A BANK HAVING NO FINANCIAL INTEREST IN THE CONTRACTOR'S OPERATIONS UNDER THE CONTRACT.

RESOLUTION OF THE MATTER IS COMPLICATED BY A SERIES OF ERRORS ON THE PART OF THE GOVERNMENT. THE RECORD FAILS TO GIVE EXPLANATION OF HOW TWO CHECKS, ISSUED OVER THREE MONTHS APART, COULD BE MISSENT AND ERRONEOUSLY ISSUED WHEN THE GOVERNMENT HAD MADE PRIOR PAYMENTS TO AN ASSIGNEE BASED UPON A VALID PROCEDURAL NOTICE OF ASSIGNMENT RECOGNIZED BY THE GOVERNMENT. IN THIS REGARD, IT IS OUR VIEW THAT THE MERE FACT THAT AN ERRONEOUS PAYMENT WAS MADE IS SUFFICIENT, IN AND OF ITSELF, TO RAISE AN INFERENCE OF NEGLIGENCE (OR LACK OF DUE CARE) ON THE PART OF THE DISBURSING OFFICER. A GOVERNMENT OFFICIAL CHARGED WITH THE HANDLING OF PUBLIC MONEYS IS EXPECTED TO EXERCISE THE HIGHEST DEGREE OF CARE IN THE PERFORMANCE OF HIS DUTIES AND WHEN AN ERRONEOUS PAYMENT IS MADE THE PRESUMPTION NATURALLY ARISES THAT THE DISBURSING OFFICER WAS DERELICT IN HIS DUTIES IN SOME WAY. A PRIMA FACIE CASE OF LACK OF DUE CARE ON THE PART OF THE RESPONSIBLE DISBURSING OFFICER IS THUS PRESENTED.

THE ERRORS ARE FURTHER COMPOUNDED SINCE ALMOST TWO YEARS LATER A VOLUNTARY DUPLICATE PAYMENT WAS MADE TO THE ASSIGNEE BANK, APPARENTLY WITH THE KNOWLEDGE OF THE FACT THAT THE ASSIGNEE BANK WAS ACTING MERELY AS A COLLECTION AGENT FOR THE SUBCONTRACTOR. THIS DUPLICATE PAYMENT, WAS OF SUCH QUESTIONABLE VALIDITY, AS TO HAVE CALLED FOR SUBMISSION TO THIS OFFICE FOR ADVANCE DECISION. WE BELIEVE A SUCCESSFUL LEGAL DEFENSE MIGHT HAVE BEEN ASSERTED AGAINST THE ASSIGNEE BANK HAD THE DUPLICATE PAYMENT NOT BEEN MADE. THE DELAY IN REFERRING THE MATTER HERE HAS PREJUDICED THE GOVERNMENT'S LEGAL POSITION IN THE MATTER.

THE RECORD PRESENTED PROVIDES NO JUSTIFICATION, OR EVEN PLAUSIBLE EXPLANATION, FOR THE DUPLICATE PAYMENT TO THE ASSIGNEE BANK. THE GENERAL ACCOUNTING OFFICE MANUAL FOR GUIDANCE OF FEDERAL AGENCIES PROVIDES THAT CLAIMS INVOLVING DOUBTFUL QUESTIONS OF LAW OR FACT MUST BE FORWARDED TO THE GENERAL ACCOUNTING OFFICE FOR ADJUDICATION AND MAY NOT BE PAID OR DENIED ADMINISTRATIVELY. SEE CHAPTER 2000, SEC. 2010.10. THIS PROCEDURE WAS CLEARLY FOR APPLICATION IN THIS CASE.

IN VIEW OF THE PRESENT POSTURE OF THE MATTER WE THINK THE BEST INTERESTS OF THE GOVERNMENT MAY BE SERVED BY AN AGREEMENT AMONG THE PARTIES SUBSTANTIALLY IN ACCORDANCE WITH THE PROPOSAL ATTACHED TO THE LETTER OF FEBRUARY 14, 1968, FROM COUNSEL FOR THE ASSIGNOR TO YOUR REGIONAL COUNSEL.

WE WOULD LIKE TO BE ADVISED OF ANY AFFIRMATIVE ACTION TAKEN BY YOU TO PREVENT FUTURE IMPROPER PAYMENTS OF THE TYPE WHICH ARE DESCRIBED HEREIN. THE FILE IS RETURNED.