B-167453, JUL. 31, 1969

B-167453: Jul 31, 1969

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CONTRACTS - PAYMENTS - SURETY V ASSIGNEE DECISION TO ARMY FINANCE AND ACCOUNTING OFFICER HOLDING THAT THERE IS NO AUTHORITY FOR PAYMENT OF AMOUNT DUE GUARANTEED PAINTING AND DECORATING. IN VIEW OF DOUBT AS TO BANK'S ENFORCEABLE RIGHTS BECAUSE A SECOND LOAN AND SECURITY AGREEMENT MAY HAVE EXTINGUISHED THE ASSIGNMENT. AS WELL AS THE CONFLICTING CLAIMS OF BANK AND SURETY PAYMENT IS NOT AUTHORIZED. THE CONTRACTOR AND ITS SURETY ON THE PAYMENT AND PERFORMANCE BONDS HAVE AGREED TO AND REQUESTED THAT PAYMENT BE MADE TO THE CONTRACTOR IN CARE OF THE SURETY. CONTENDS IT IS ENTITLED TO PAYMENT AS THE CONTRACTOR'S ASSIGNEE. APPARENTLY THE CONTRACT WAS COMPLETED BY THE CONTRACTOR IN JUNE 1968. THE PRECEDING PAYMENT WAS MADE ON MARCH 25.

B-167453, JUL. 31, 1969

CONTRACTS - PAYMENTS - SURETY V ASSIGNEE DECISION TO ARMY FINANCE AND ACCOUNTING OFFICER HOLDING THAT THERE IS NO AUTHORITY FOR PAYMENT OF AMOUNT DUE GUARANTEED PAINTING AND DECORATING, INC., UNDER CONTRACT FOR PAINTING FAMILY QUARTERS AT FORT BENJAMIN HARRISON WHICH CONTRACT HAD BEEN ASSIGNED TO A BANK. IN VIEW OF DOUBT AS TO BANK'S ENFORCEABLE RIGHTS BECAUSE A SECOND LOAN AND SECURITY AGREEMENT MAY HAVE EXTINGUISHED THE ASSIGNMENT, AS WELL AS THE CONFLICTING CLAIMS OF BANK AND SURETY PAYMENT IS NOT AUTHORIZED. BEFORE PAYMENT MAY BE ALLOWED THE DIFFERENCES SHOULD BE RESOLVED OR A JUDICIAL DETERMINATION OF THE RESPECTIVE RIGHTS OBTAINED.

TO COLONEL FARR:

BY LETTER DATED JULY 8, 1969, THE CHIEF, MILITARY PAY AND TRAVEL DIVISION, OFFICE, CHIEF OF FINANCE AND ACCOUNTING, FORWARDED YOUR LETTER OF MAY 14, 1969, WITH ENCLOSURES, REQUESTING OUR DECISION AS TO THE PROPRIETY OF CERTIFYING A VOUCHER FOR PAYMENT IN FAVOR OF GUARANTEED PAINTING AND DECORATING, INCORPORATED, IN THE AMOUNT OF $7,243.67, LESS A SET-OFF OF $197.35, DUE UNDER CONTRACT NO. DABE 09-68 C-0009. THE CONTRACTOR AND ITS SURETY ON THE PAYMENT AND PERFORMANCE BONDS HAVE AGREED TO AND REQUESTED THAT PAYMENT BE MADE TO THE CONTRACTOR IN CARE OF THE SURETY. THE FARMERS AND CITIZENS BANK, TROTWOOD, OHIO, CONTENDS IT IS ENTITLED TO PAYMENT AS THE CONTRACTOR'S ASSIGNEE.

THE CONTRACT, DATED JUNE 28, 1967, CALLED FOR PAINTING THE INTERIOR OF 60 FAMILY QUARTERS AT FORT BENJAMIN HARRISON, INDIANA. APPARENTLY THE CONTRACT WAS COMPLETED BY THE CONTRACTOR IN JUNE 1968. THE CONTRACTOR HAS RECEIVED PAYMENTS TOTALING APPROXIMATELY $14,000, THE LAST PAYMENT BEING MADE ON MAY 1, 1968, IN THE AMOUNT OF $4,930.45. THE PRECEDING PAYMENT WAS MADE ON MARCH 25, 1968, IN THE AMOUNT OF $320.00. THE CONTRACT INCLUDES A PROVISION AUTHORIZING ASSIGNMENT WITHOUT SET-OFF OF THE MONIES DUE OR TO BECOME DUE THE CONTRACTOR FROM THE GOVERNMENT UNDER THE CONTRACT PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, 41 U.S.C. 15.

BY LETTER DATED APRIL 2, 1968, RECEIVED ON APRIL 4, 1968, ADDRESSED TO THE FINANCE AND ACCOUNTS OFFICE, FORT BENJAMIN HARRISON, INDIANA, THE FARMERS AND CITIZENS BANK ADVISED THAT IT HAD BEEN ASSIGNED THE GOVERNMENT'S ACCOUNT WITH THE CONTRACTOR AND IT SHOULD RECEIVE ALL FUTURE PAYMENTS. IN REPLY TO YOUR LETTER ADVISING THAT THE STATUTORY PROVISIONS CONCERNING NOTICE HAD NOT BEEN MET, THE BANK'S ATTORNEY WROTE ON APRIL 23, 1968, ENCLOSING A COPY OF A LOAN AND SECURITY AGREEMENT FOR ACCOUNTS RECEIVABLE EXECUTED BETWEEN THE CONTRACTOR AND THE BANK ON FEBRUARY 10, 1966. THE BANK'S ATTORNEY WAS ADVISED ON APRIL 30, 1968, THAT THE DOCUMENT SUBMITTED DID NOT CONSTITUTE A VALID ASSIGNMENT. IN REPLY TO A LETTER DATED JANUARY 24, 1969, THE BANK ADVISED THAT IT INTENDED TO CONTINUE ASSERTION OF ITS CLAIM FOR ANY PAYMENTS DUE THE CONTRACTOR.

BY LETTER DATED MAY 17, 1968, THE CONTRACTOR'S ATTORNEY SUBMITTED AN AGREEMENT DATED FEBRUARY 8, 1968, BETWEEN THE CONTRACTOR AND THE BANK WHICH IS CLAIMED TO BE AN ACCORD AND SATISFACTION OF ALL PRIOR DEBTS OF THE CONTRACTOR TO THE BANK. ALSO ENCLOSED WITH THIS LETTER WAS A LETTER DATED MAY 16, 1968, FROM THE CONTRACTOR TO THE BANK DENYING THE VALIDITY OF THE LOAN AND SECURITY AGREEMENT OF FEBRUARY 10, 1966, AND, NOTWITHSTANDING THIS POSITION, ADVISING THAT "ANY RIGHTS THAT YOU MAY HAVE ACQUIRED BY REASON OF THE SAME ARE HEREBY TERMINATED IN ACCORDANCE WITH PARAGRAPH 9 OF THIS DOCUMENT.' PARAGRAPH 9 OF THE LOAN AND SECURITY AGREEMENT GIVES BOTH PARTIES THE RIGHT TO TERMINATE, RESERVING ANY RIGHTS CREATED OR OBLIGATIONS INCURRED PRIOR TO RECEIPT OF NOTICE OF TERMINATION.

ALSO IN THE FILE SUBMITTED TO OUR OFFICE IS COPY OF AN ENTRY VACATING JUDGMENT IN CASE NO. 131387, ENTITLED THE FARMERS AND CITIZENS BANK, PLAINTIFF VS. GUARANTEED PAINTING AND DECORATING, INC., DEFENDANT, IN THE COMMON PLEAS COURT OF MONTGOMERY COUNTY, OHIO. AS A RESULT OF A HEARING ON MAY 6, 1968, THE COURT ORDERED A JUDGMENT IN THE AMOUNT OF $215,143.05, AGAINST THE DEFENDANT VACATED BECAUSE THE DEFENDANT "HAS ASSERTED A VALID DEFENSE TO THE POSITION OF THE PLAINTIFF ... IN THE NATURE OF AN ASSERTED WRITTEN ACCORD ...' THE COURT ALSO SUSPENDED ANY LIEN ARISING FROM THE JUDGMENT PENDING THE DETERMINATION OF THE CAUSE ON THE MERITS. THE FILE INDICATES THAT THIS LITIGATION IS STILL PENDING.

BY LETTERS DATED MAY 31 AND JUNE 20, 1968, THE SURETY, AETNA LIFE AND CASUALTY, DENIED THE VALIDITY OF THE BANK'S CLAIM AND REQUESTED THAT ANY FUNDS DUE UNDER THE CONTRACT BE PAID TO THE CONTRACTOR IN CARE OF THE AETNA CASUALTY AND SURETY DIVISION. IN A LETTER DATED JUNE 3, 1968, THE CONTRACTOR MADE THE SAME REQUEST. ALTHOUGH THE CONTRACT WAS NOT DEFAULTED, IT APPEARS THAT THE SURETY HAS MADE PAYMENTS TOTALING APPROXIMATELY $8,700 UNDER THE PAYMENT BOND.

YOU HAVE REQUESTED OUR DECISION BEFORE MAKING ANY FURTHER PAYMENTS UNDER THE CONTRACT IN VIEW OF OUR HOLDING IN 20 COMP. GEN. 424, THAT A DISBURSING OFFICER SHOULD NOT MAKE PAYMENT TO AN ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 WHEN THERE IS ANY DOUBT AS TO COMPLIANCE WITH THE STATUTORY REQUIREMENT REGARDING WRITTEN NOTICES WITHOUT FIRST SUBMITTING THE MATTER TO THE GENERAL ACCOUNTING OFFICE FOR DECISION. THIS REGARD, YOU QUESTION THE VALIDITY OF THE LOAN AND SECURITY AGREEMENT AS AN ASSIGNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, AND QUESTION WHETHER THERE WAS COMPLIANCE WITH THE STATUTORY NOTICE REQUIREMENTS.

APPARENTLY YOUR DOUBT AS TO THE VALIDITY OF THE ASSIGNMENT RESULTS FROM THE FACT THAT THE LOAN AND SECURITY AGREEMENT WAS EXECUTED PRIOR TO AWARD OF THE CONTRACT. STATE LAW APPEARS TO VALIDATE THE PRIOR ASSIGNMENT OF AFTER-ACQUIRED CONTRACT RIGHTS, ALTHOUGH THE ATTACHMENT OF SUCH RIGHTS DOES NOT OCCUR UNTIL THE CONTRACT HAS BEEN EXECUTED. SEE BALDWIN'S OHIO REVISED CODE ANNOTATED 1964, TITLE XIII, ARTICLES 1309.06 AND 1309.15. WHETHER SUCH A PRIOR ASSIGNMENT SHOULD BE CONSIDERED VALID UNDER THE ASSIGNMENT OF CLAIMS ACT NEED NOT, PRESENTLY AT LEAST, BE DECIDED IN THE INSTANT CASE.

WITH REGARD TO YOUR QUESTION CONCERNING COMPLIANCE WITH THE STATUTORY NOTICE REQUIREMENTS, WE HAVE STATED THAT AN ASSIGNEE WHO DOES NOT SUBSTANTIALLY COMPLY WITH THE NOTICE REQUIREMENTS OF THE ACT WOULD NOT APPEAR TO HAVE ANY ENFORCEABLE RIGHTS AGAINST THE GOVERNMENT. 20 COMP. GEN. 424. THE ACT PROVIDES THAT THE ASSIGNEE SHALL FILE WRITTEN NOTICE OF THE ASSIGNMENT TOGETHER WITH A TRUE COPY OF THE INSTRUMENT OF ASSIGNMENT WITH (1) THE CONTRACTING OFFICER OR THE HEAD OF HIS DEPARTMENT OR AGENCY, (2) THE SURETY, AND (3) THE DISBURSING OFFICER, IF ANY, DESIGNATED IN THE CONTRACT. THE SUBJECT CONTRACT DESIGNATES THE FINANCE OFFICER, FORT BENJAMIN HARRISON, INDIANA, AS THE DISBURSING OFFICER. THE BANK'S LETTER OF APRIL 2, 1968, AND A COPY OF THE LOAN AND SECURITY AGREEMENT WERE SENT TO AND ACKNOWLEDGED BY THE FINANCE AND ACCOUNTS OFFICE, FORT BENJAMIN HARRISON, INDIANA. ALTHOUGH THE CONTRACTING OFFICER AND THE SURETY WERE NOT NOTIFIED, WE BELIEVE THE NOTICE GIVEN AMOUNTS TO SUBSTANTIAL COMPLIANCE WITH THE NOTICE REQUIREMENTS OF THE ACT.

ALSO FOR CONSIDERATION IS THE EFFECT OF THE AGREEMENT DATED FEBRUARY 8, 1968, BETWEEN THE BANK AND CONTRACTOR. IT WOULD APPEAR THAT THIS AGREEMENT WOULD HAVE THE EFFECT OF AN ACCORD AND SATISFACTION, EXTINGUISHING THE EARLIER LOAN AND SECURITY AGREEMENT UPON WHICH THE BANK'S CLAIM AS AN ASSIGNEE IS BASED. 1.C.J.S. ACCORD AND SATISFACTION SEC. 22. HOWEVER, AS NOTED HERETOFORE, IT APPEARS THAT THE QUESTION WHETHER THE AGREEMENT IS A VALID ACCORD AND SATISFACTION MAY STILL BE THE SUBJECT OF LITIGATION.

ORDINARILY, WHERE THE CONTRACTOR AND THE SURETY AGREE TO THE DISPOSITION OF THE PROCEEDS DUE UNDER A CONTRACT, IN THE MANNER HERE AGREED TO, OUR OFFICE WILL INTERPOSE NO OBJECTION. HOWEVER, WE HAVE FOR CONSIDERATION THE CONFLICTING CLAIM OF THE BANK. IN THE CIRCUMSTANCES RECITED ABOVE THE BANK MAY NOT HAVE ANY ENFORCEABLE RIGHTS AGAINST THE GOVERNMENT UNDER THE ASSIGNMENT OF CLAIMS ACT, BUT OUR DETERMINATION ON THIS WOULD NOT BE RES JUDICATA, AND THE GOVERNMENT MIGHT BE SUBJECTED TO DOUBLE LIABILITY IF PAYMENT WERE MADE EITHER TO THE CONTRACTOR IN CARE OF THE SURETY OR TO THE BANK. SINCE PAYMENT TO EITHER OF THE CLAIMANTS WOULD NOT ASSURE THE GOVERNMENT OF A GOOD AND VALID ACQUITTANCE, WE ARE UNABLE TO AUTHORIZE SETTLEMENT OR SET-OFF OF THE GOVERNMENT'S CLAIM IN THE ABSENCE OF A COMPOSITION OF DIFFERENCES OR A JUDICIAL DETERMINATION OF THE RESPECTIVE RIGHTS OF THE CONFLICTING CLAIMANTS. B-154628, FEBRUARY 9, 1965.