B-165227, NOVEMBER 26, 1968, 48 COMP. GEN. 365

B-165227, NOVEMBER 26, 1968, 48 COMP. GEN. 365

JOINT VENTURES - INDEPENDENT DEBT OF ONE COVENTURER ALTHOUGH THE GENERAL RULE IS THAT FUNDS DUE A JOINT VENTURE--- A FORM OF LIMITED PARTNERSHIP SUBJECT GENERALLY TO THE LAWS OF PARTNERSHIP--- MAY NOT BE SET OFF TO SATISFY THE INDEPENDENT PRIOR DEBT OF ONE OF THE COVENTURERS, EVEN IF THE SET-OFF IS ONLY AGAINST HIS INTEREST IN THE PARTNERSHIP CLAIM, THE RULE IS NEGATED WHEN ALL THE PARTIES TO THE JOINT VENTURE AGREE SUBSEQUENT TO CONTRACT PERFORMANCE THAT THE JOINT VENTURERS WILL PURSUE AND OBTAIN PAYMENT FROM THE GOVERNMENT AS INDIVIDUALS. THEREFORE, THE AMOUNT DUE UNDER THE AGREEMENT TO THE PARTNER INDEBTED TO THE GOVERNMENT FOR DAMAGES ASSESSED UNDER HIS DEFAULTED, INDIVIDUAL CONTRACT WITH THE GOVERNMENT MAY BE SET OFF TO PARTIALLY LIQUIDATE THAT INDEBTEDNESS, NOTWITHSTANDING PURSUANT TO ACCOUNTING PROCEDURE, THE INDEBTEDNESS HAD BEEN WRITTEN OFF AS UNCOLLECTIBLE. DEBT COLLECTIONS - AMOUNT UNCOLLECTIBLE - WRITEOFF DOES NOT PRECLUDE COLLECTION THE FACT THAT A DEBT HAS BEEN WRITTEN OFF BY AN ADMINISTRATIVE AGENCY AS UNCOLLECTIBLE DOES NOT PRECLUDE THE SUBSEQUENT SATISFACTION OF THE INDEBTEDNESS, GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES, TITLE 4, SECTION 56.7, ENTITLED "ADMINISTRATIVE ACCOUNTING FOR UNCOLLECTIBLE DEBTS," PRESCRIBING THE MAINTENANCE OF AN ADMINISTRATIVE RECORD AS OPPOSED TO AN ACCOUNTING RECORD OF DEBTS WRITTEN OFF AS UNCOLLECTIBLE WITH THE VIEW THAT AT SOME FUTURE TIME THE DEBT MIGHT BECOME COLLECTIBLE THROUGH SET-OFF OF AMOUNTS DUE THE DEBTOR FROM THE AGENCY.

TO LILA HANNEBRINK, DEPARTMENT OF THE INTERIOR, NOVEMBER 26, 1968:

REFERENCE IS MADE TO LETTER D 733B-2, DATED SEPTEMBER 4, 1968, WHEREIN YOU REQUEST A DECISION AS TO THE LEGALITY OF OFFSETTING THE AMOUNT OF $989.82 OTHERWISE DUE AND PAYABLE TO T. W. RISBERG BY VIRTUE OF HIS PERFORMANCE AS ONE PARTY TO A JOINT VENTURE UNDER CONTRACT 14 11-0008- 3146, AGAINST AN INDEBTEDNESS WHICH AROSE OUT OF HIS PRIOR DEFAULT OF CONTRACT 14-11-0008-1906. YOU ADVISE THAT THE INDEBTEDNESS HAS BEEN WRITTEN OFF AS UNCOLLECTIBLE.

YOU STATE THAT CONTRACT 14-11-0008-1906 DATED MARCH 8, 1965, WAS EXECUTED BY T. W. RISBERG FOR THE CONSTRUCTION OF 7.3 MILES OF BARBED WIRE FENCE AND 12 DRAINAGE CROSSINGS AT THE PRICE RCA PROTECTION FENCE CONSTRUCTION PROJECT, FOR APPROXIMATELY $1,978.80. BECAUSE OF RISBERG'S ABANDONMENT OF THE PROJECT AFTER COMPLETION OF APPROXIMATELY 25 PERCENT OF THE WORK, AND HIS FAILURE THEREAFTER TO RESPOND TO TIMELY WRITTEN REQUESTS TO PROCEED, THE CONTRACT WAS TERMINATED FOR DEFAULT ON AUGUST 10, 1965.

ON SEPTEMBER 21, 1965, A REPLACEMENT CONTRACT BEARING THE SAME NUMERICAL DESIGNATION AS RISBERG'S EARLIER CONTRACT WAS AWARDED TO MASSEY AND WRIGHT IN THE APPROXIMATE AMOUNT OF $2,345.80. A CERTIFICATE FOR CONTRACT PAYMENT DATED OCTOBER 19, 1965, SHOWS THAT THE CONTRACT WAS SATISFACTORILY COMPLETED ON OCTOBER 18, 1965, FOR $2,345.80.

THE RECORD INDICATES THAT NUMEROUS ATTEMPTS HAVE BEEN MADE TO COLLECT THE SUM OF $3,399.93 DETERMINED TO BE DUE AND OWING THE GOVERNMENT BY RISBERG AS EXCESS COSTS OCCASIONED BY THE BREACH TOTALING $1,074.93, AND LIQUIDATED DAMAGES ASSESSED FOR DELAY IN COMPLETING THE PROJECT IN THE AMOUNT OF $2,325. ON MAY 23, 1967, THE INDEBTEDNESS WAS WRITTEN OFF AS UNCOLLECTIBLE IN ACCORDANCE WITH THE PROVISIONS OF 4 CFR 1043. INSOFAR AS THAT REGULATION APPLIES TO THE PRESENT CONTROVERSY, IT PROVIDES THAT "THE HEAD OF AN AGENCY OR HIS DESIGNEE MAY TERMINATE COLLECTION ACTIVITY AND CONSIDER THE AGENCY'S FILE ON THE CLAIM CLOSED * * *" WHERE THE DEBTOR CANNOT BE LOCATED OR THE COST OF COLLECTION WILL EXCEED THE RECOVERY.

CONTRACT 14-11-0008-3146 WAS ENTERED INTO ON JUNE 10, 1968, WITH A JOINT VENTURE COMPRISED OF SOUTHWESTERN TREE EXPERT CO., OWNED SOLELY BY T. W. RISBERG, AND A.W. MOSS CO. OWNED SOLELY BY A. W. MOSS. THE PARTIES TO THE JOINT VENTURE WERE TO PLANT 75,000 TREE SEEDLINGS ON THE JACK HALL MOUNTAIN TREE PLANTING PROJECT FOR APPROXIMATELY $4,415.25. SUBSEQUENT TO PERFORMANCE THE PARTIES TO SUCH CONTRACT EXECUTED AN AGREEMENT DATED AUGUST 22, 1968,"FOR THE PURPOSE OF SECURING SETTLEMENT.' THE AGREEMENT PROVIDES IN PERTINENT PART AS FOLLOWS:

WHEREAS, THE CONTRACTOR (PLANTING CREW) PLANTED A TOTAL OF 75,400 TREES, OF WHICH 12.88 PERCENT WERE IMPROPERLY PLANTED, RESULTING IN A TOTAL NET AMOUNT PAYABLE UNDER THE TERMS OF SAID CONTRACT OF $4,067.27; AND

WHEREAS, THE ATTACHED ACCOUNTING RECORD, IDENTIFIED AS EXHIBIT 1, REPRESENTS A TRUE, ACCURATE, AND COMPLETE ACCOUNTING OF EXPENSES INCURRED BY THE CONTRACTOR IN PERFORMANCE OF WORK REQUIRED UNDER THE ABOVE NUMBERED CONTRACT. THE NET TOTAL OF THESE EXPENDITURES AMOUNTS TO $2,087.63, AND

WHEREAS, MOSS FURNISHED TO THE GOVERNMENT THE REQUIRED PERFORMANCE BOND, AND HAS FULLY REIMBURSED ALL MATERIALMEN, SUPPLIERS, MOTEL OWNERS AND LABORERS WHO HAVE SUPPLIED ANY AND ALL MATERIALS, SUBSISTENCE,LODGING, EQUIPMENT OR LABOR FOR THE COMPLETION OF THIS PROJECT; AND

WHEREAS, THE NET PROFITS EARNED BY THE CONTRACTOR UNDER THIS JOINT VENTURE AGREEMENT TOTAL $1,979.64

TOTAL CONTRACT EARNINGS $4,067.27

LESS TOTAL EXPENSES 2,087.63

NET PROFITS $1,979.64 AND,

WHEREAS, THESE NET PROFITS ARE TO BE SHARED EQUALLY BY EACH JOINT VENTURER, AS PROVIDED IN THE JOINT VENTURE AGREEMENT MADE AND ENTERED INTO BY THESE PARTIES ON MAY 20, 1968; AND

WHEREAS, IT IS THE DESIRE OF THE JOINT VENTURERS TO OBTAIN PROMPT PAYMENT BY THE GOVERNMENT OF SUMS DUE MOSS UNDER SAID JOINT VENTURE AGREEMENT; AND

WHEREAS, SUCH PROMPT PAYMENT MAY BE IN JEOPARDY DUE TO AN EXISTING DEBT OWED THE GOVERNMENT BY RISBERG AS AN INDIVIDUAL;

NOW, THEREFORE, THE PARTIES HERETO MUTUALLY AGREE AS FOLLOWS:

1. THE PARTIES HERETO AGREE THAT FOR PURPOSES OF PAYMENT OF ANY SUMS DUE UNDER THIS CONTRACT THAT THE MEMBERS OF THE JOINT VENTURE WHO ARE PARTIES HERETO WILL PURSUE AND OBTAIN PAYMENT FROM THE GOVERNMENT AS INDIVIDUALS RATHER THAN AS A JOINT VENTURE.

2. THE GOVERNMENT (BUREAU OF LAND MANAGEMENT, THE CONTRACTING AGENCY) SHALL PAY TO, AND IN THE NAME OF THE CONTRACTOR, SOUTHWESTERN TREE EXPERT COMPANY AND A.W. MOSS CO., THE SUM OF $2,087.63 TO COVER THE EXPENSES INCURRED BY THE JOINT VENTURERS IN COMPLETING THE PROJECT, TOGETHER WITH A PAYMENT OF $989.82 REPRESENTING MOSS'S TOTAL INTEREST IN THE NET PROFITS EARNED UNDER THE JOINT VENTURE AGREEMENT OF MAY 20, 1968.

3. THE PAYMENT OF THIS $3,077.45 SHALL BE MAILED TO THE ADDRESS INDICATED IN THE JOINT VENTURE AGREEMENT.

4. THE BALANCE OF THE CONTRACT PROCEEDS, I.E., $989.82, REPRESENTS RISBERG'S NET PROFIT UNDER CONTRACT 14-11-0008-3146.

5. IN CONSIDERATION OF THE PREMISES AND THE PROMPT PAYMENT BY THE GOVERNMENT TO THE CONTRACTOR OF THE AMOUNT OF THREE THOUSAND SEVENTY SEVEN AND FORTY-FIVE HUNDREDTHS DOLLARS ($3,044.45). MOSS HEREBY REMISES, RELEASES, AND FOREVER DISCHARGES THE UNITED STATES OF AND FROM ALL MANNER OF DEBTS, DUES, SUM OR SUMS OF MONEY, ACCOUNTS, CLAIMS AND DEMANDS WHATSOEVER, IN LAW AND IN EQUITY, UNDER OR BY VIRTUE OF THE SAID CONTRACT AND JOINT VENTURE.

6. RISBERG, AS AN INDIVIDUAL, RETAINS ANY AND ALL RIGHTS TO PURSUE AND OBTAIN PAYMENT FROM THE GOVERNMENT OF SUMS, ACCOUNTS, CLAIMS AND DEMANDS UNDER OR BY VIRTUE OF THE SAID CONTRACT.

THERE ARE FOR CONSIDERATION QUESTIONS AS TO (1) WHETHER FUNDS DUE A JOINT VENTURE MAY BE SET OFF TO SATISFY THE INDEPENDENT PRIOR DEBT OF ONE OF THE COVENTURERS, AND (2) IF THE ANSWER TO (1) IS IN THE AFFIRMATIVE, WHETHER THOSE FUNDS MAY BE APPLIED TO A DEBT SINCE DETERMINED TO BE UNCOLLECTIBLE. THESE QUESTIONS WILL BE ANSWERED BELOW, SERIATIM.

A JOINT VENTURE HAS BEEN CHARACTERIZED AS A LIMITED PARTNERSHIP AND IS SUBJECT GENERALLY TO THE LAWS OF PARTNERSHIP. THE GENERAL RULE IS THAT IN AN ACTION BY A PARTNERSHIP TO RECOVER A DEBT THE AGGRIEVED PARTY CANNOT SET OFF AN INDIVIDUAL DEBT DUE HIM BY ONE MEMBER OF THE FIRM. SEE 39 COMP. GEN. 438, 439, AND CASES CITED THEREIN.

IT IS STATED IN SECTION 6 OF THE NOTE AT 39 ALR 2D 288 THAT THE PROHIBITION AGAINST THE SETOFF OF FUNDS OWED A PARTNERSHIP TO SATISFY THE ANTECEDENT DEBT OF ONE OF THE PARTNERS CANNOT BE AVOIDED BY AN ATTEMPT TO SET OFF THE INDIVIDUAL PARTNER'S DEBT AGAINST ONLY HIS INTEREST IN THE PARTNERSHIP CLAIM. THIS GENERAL RULE IS BASED ON THE PREMISE THAT A SETOFF REQUIRES MUTUALITY OF DEBTS AND THAT TO PERMIT SUCH A SETOFF WOULD BE AN INDIRECT APPROPRIATION OF THE PARTNERSHIP ASSETS TO THE PAYMENT OF THE PRIVATE DEBT OF ONE OF THE INDIVIDUAL PARTNERS. 39 ALR 2D 288, NOTE SECTION 2, AND CASES CITED THEREIN.

THE DEBT WHICH AROSE UNDER RISBERG'S DEFAULT OF THE 1965 CONTRACT WAS INCURRED INDEPENDENTLY OF THE LATER 1968 CONTRACT, AND A. W. MOSS WAS NOT CONNECTED IN ANY WAY WITH THE 1965 CONTRACT. THUS, IN THE LIGHT OF THE GENERAL RULE, IT WOULD APPEAR THAT THE SETOFF OF ANY MONIES OWED THE JOINT VENTURE UNDER THE 1968 CONTRACT AGAINST THE ANTECEDENT DEBT OF RISBERG UNDER THE 1965 CONTRACT WOULD BE OF DOUBTFUL LEGALITY.

HOWEVER, SETOFF IS PERMISSIBLE WHERE THERE IS AN AGREEMENT, EXPRESS OR IMPLIED, BY ALL THE PARTIES TO THE CONTRACT THAT THE INDIVIDUAL PARTNER'S LIABILITY WILL BE PAID OUT OF THE PARTNERSHIP ASSETS. SEE 39 ALR 2D 288, NOTE SECTION 11. WE ARE OF THE OPINION THAT THE ABOVE QUOTED AGREEMENT OF AUGUST 22, 1968, SIGNED BY THE GOVERNMENT AND BOTH PARTIES TO THE JOINT VENTURE, EFFECTIVELY NEGATED THE APPLICATION OF THE GENERAL RULE STATED ABOVE AND, AT LEAST TO THE EXTENT STIPULATED THEREIN, MADE THE AMOUNT OTHERWISE DUE THE JOINT VENTURE AVAILABLE TO THE GOVERNMENT FOR SETOFF AGAINST RISBERG'S PRIOR INDEBTEDNESS. IN ARRIVING AT THIS CONCLUSION, WE HAVE TAKEN NOTE OF THE FACT THAT THE AGREEMENT CLEARLY STIPULATES THAT THE COVENTURERS WILL SEEK PAYMENT AS INDIVIDUALS; THAT MOSS RELEASES THE GOVERNMENT FROM ALL CLAIMS "UNDER OR BY VIRTUE OF" THE CONTRACT AND THE JOINT VENTURE; AND THAT RISBERG, AS AN INDIVIDUAL, RETAINS THE RIGHT TO SEEK PAYMENTS OSTENSIBLY DUE HIM UNDER THE CONTRACT, BUT NOT PAYMENTS WHICH AROSE UNDER THE JOINT VENTURE AGREEMENT. SINCE THE PARTIES TO THE JOINT VENTURE STRICTLY LIMITED THE AMOUNT WHICH COULD BE APPLIED TO RISBERG'S PRIOR INDEBTEDNESS TO $989.92, THAT AMOUNT IS THE MAXIMUM WHICH IS AVAILABLE TO THE GOVERNMENT FOR SETOFF.

CONCERNING THE LEGALITY OF TAKING ACTION TO SATISFY AN INDEBTEDNESS ONCE IT HAS BEEN DECLARED UNCOLLECTIBLE, IT APPEARS THAT AN ADMINISTRATIVE DETERMINATION OF UNCOLLECTIBILITY IS FOR ACCOUNTING PURPOSES ONLY AND, AS SUCH, DOES NOT PRECLUDE THE SUBSEQUENT SATISFACTION OF THE INDEBTEDNESS SHOULD THE OPPORTUNITY TO DO SO THEREAFTER BE PRESENTED TO THE ADMINISTRATIVE OFFICE. IN THIS REGARD, SEE TITLE 4, SECTION 56.7, GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES, ENTITLED "ADMINISTRATIVE ACCOUNTING FOR UNCOLLECTIBLE DEBTS," WHICH PROVIDES, IN PERTINENT PART, THAT:

ADMINISTRATIVE AGENCIES SHALL WRITE OFF, AS UNCOLLECTIBLE, RECEIVABLES WHICH ARE DETERMINED TO BE UNCOLLECTIBLE THROUGH MEANS AVAILABLE TO THEM, * * *. HOWEVER, THIS DOES NOT PRECLUDE THE AGENCY FROM MAINTAINING AN ADMINISTRATIVE (AS OPPOSED TO AN ACCOUNTING) RECORD OF THOSE DEBTS WHICH, BECAUSE OF THE RELATIONSHIP OF THE DEBTOR TO THE AGENCY, MIGHT AT SOME FUTURE TIME BECOME COLLECTIBLE THROUGH SET-OFF OF AMOUNTS BECOMING DUE THE DEBTOR FROM THE AGENCY.

ACCORDINGLY, YOU ARE ADVISED THAT THE SUM OF $989.82 DUE THE SOUTHWESTERN TREE EXPERT CO. UNDER THE 1968 CONTRACT MAY BE SET OFF IN PARTIAL SATISFACTION OF THE INDEBTEDNESS OF RISBERG ARISING FROM HIS BREACH OF THE 1965 CONTRACT, IF PROPER IN OTHER RESPECTS.