B-171552, APR 27, 1971

B-171552: Apr 27, 1971

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THE AMOUNTS WERE PROPERLY DEDUCTED BY VIRTURE OF GOVERNMENT'S RIGHT TO SETOFF AND WHILE ACA ASSIGNED THE FUNDS TO A BANK WHICH IS EXEMPTED FROM THE OPERATION OF THE ASSIGNMENT OF CLAIMS ACT OF 1940. THE ASSIGNMENT WAS EFFECTED SOLELY FOR WYNN'S BENEFIT. THE BANK IS NOT A FINANCING INSTITUTION WITHIN THE MEANING OF THE ACT AND IT MAKES NO DIFFERENCE WHETHER THE ASSIGNMENT WAS MADE BEFORE OR AFTER SETOFF. INC.: THIS IS IN REPLY TO YOUR LETTER DATED NOVEMBER 23. OUR CLAIMS DIVISION ADVISED YOU THAT ACA WAS INDEBTED TO THE GOVERNMENT UNDER CERTAIN PRIOR CONTRACTS LISTED THEREIN. THAT SUCH INDEBTEDNESS WAS DEDUCTED ON MAY 18. YOU WERE ADVISED THAT THE DEDUCTION WAS PROPERLY EFFECTED. A NOTICE THEREOF WERE RECEIVED BY THE GOVERNMENT ON MAY 28.

B-171552, APR 27, 1971

CONTRACTS - ASSIGNMENTS - INVALID DENYING CLAIM OF WYNN INDUSTRIES TO MONIES WITHHELD FROM AMOUNTS DUE UNDER A CONTRACT WITH APPAREL CORP. OF AMERICA (ACA). THE AMOUNTS WERE PROPERLY DEDUCTED BY VIRTURE OF GOVERNMENT'S RIGHT TO SETOFF AND WHILE ACA ASSIGNED THE FUNDS TO A BANK WHICH IS EXEMPTED FROM THE OPERATION OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, 31 U.S.C. 703, THE ASSIGNMENT WAS EFFECTED SOLELY FOR WYNN'S BENEFIT, ALL AMOUNTS GOING TO THE BANK FOR CREDIT TO ITS ACCOUNT; UNDER THESE CIRCUMSTANCES, THE BANK IS NOT A FINANCING INSTITUTION WITHIN THE MEANING OF THE ACT AND IT MAKES NO DIFFERENCE WHETHER THE ASSIGNMENT WAS MADE BEFORE OR AFTER SETOFF.

TO WYNN INDUSTRIES, INC.:

THIS IS IN REPLY TO YOUR LETTER DATED NOVEMBER 23, 1970, IN WHICH YOU DISAGREE WITH THE DISALLOWANCE BY OUR CLAIMS DIVISION OF YOUR CLAIM FOR REFUND OF $10,688.46 WITHHELD FROM THE AMOUNTS DUE UNDER CONTRACT NO. DSA100-69-C-1409, WITH APPAREL CORPORATION OF AMERICA (ACA).

BY LETTER OF NOVEMBER 19, 1970, OUR CLAIMS DIVISION ADVISED YOU THAT ACA WAS INDEBTED TO THE GOVERNMENT UNDER CERTAIN PRIOR CONTRACTS LISTED THEREIN, AND THAT SUCH INDEBTEDNESS WAS DEDUCTED ON MAY 18, 1970, FROM PROCEEDS DUE UNDER THE ABOVE REFERENCED CONTRACT WITH ACA. YOU WERE ADVISED THAT THE DEDUCTION WAS PROPERLY EFFECTED, BY VIRTUE OF THE GOVERNMENT'S COMMON-LAW RIGHT OF SETOFF, PRIOR TO EXECUTION ON MAY 26, 1970, OF THE ASSIGNMENT OF PROCEEDS DUE ACA UNDER THE ABOVE-REFERENCED CONTRACT TO THE PARK NATIONAL BANK OF KNOXVILLE. COPIES OF THE ASSIGNMENT, AND A NOTICE THEREOF WERE RECEIVED BY THE GOVERNMENT ON MAY 28, 1970.

IT IS YOUR CONTENTION THAT THE DEDUCTION WAS IMPROPERLY TAKEN SINCE THE CONTRACTING OFFICER WAS ON NOTICE, PRIOR TO ACTUAL EXECUTION OF THE ASSIGNMENT ON MAY 26, THAT THE CONTRACT'S PROCEEDS WERE TO BE ASSIGNED TO THE BANK SOLELY FOR THE CREDIT OF YOUR COMPANY.

AN ASSIGNMENT OF ACCOUNTS RECEIVABLE FROM THE UNITED STATES CAN BE LAWFULLY ACCOMPLISHED ONLY THROUGH COMPLIANCE WITH THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, 41 U.S.C. 15. AS PROVIDED BY THAT ACT, THE GENERAL PROHIBITION AGAINST ASSIGNMENTS DOES "NOT APPLY IN ANY CASE IN WHICH THE MONEYS DUE OR TO BECOME DUE FROM THE UNITED STATES ... ARE ASSIGNED TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION. ... "

IN ADDITION TO THE FACT THAT THE ASSIGNMENT WAS FILED WITH THE GOVERNMENT AFTER THE SETOFF, THERE APPEARS TO BE INVOLVED HERE A QUESTION AS TO THE VALIDITY 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. IT APPEARS FROM YOUR OWN STATEMENTS THAT THE ASSIGNMENT IN THIS CASE WAS EFFECTED SOLELY FOR YOUR BENEFIT, AND THAT ALL AMOUNTS PAID UNDER THE CONTRACT WOULD GO TO THE BANK FOR CREDIT TO THE ACCOUNT OF WYNN INDUSTRIES. IT IS CLEAR THAT THE BANK WOULD BE MERELY ACTING AS YOUR AGENT FOR THE PURPOSE OF COLLECTION. UNDER THESE CIRCUMSTANCES THE ASSIGNMENT MUST BE REGARDED, IN PRACTICAL EFFECT, TO HAVE BEEN MADE TO YOU, AND WE DO NOT REGARD SUCH AN ASSIGNMENT TO THE AGENT BANK AS ENFORCEABLE AGAINST THE GOVERNMENT SINCE YOU, AS THE PRINCIPAL, ARE NOT A "FINANCING INSTITUTION" WITHIN THE MEANING OF THE ACT. SEE BEACON WEAR CLOTHING COMPANY V UNITED STATES, 355 F.2D 583 (1966); AND B-155944, FEBRUARY 10, 1965.

IN VIEW OF THE FOREGOING IT IS OUR OPINION THAT THE PARK NATIONAL BANK HAD NO ENFORCEABLE RIGHT, BASED UPON THE ASSIGNMENT FROM ACA, TO DEMAND PAYMENT FROM THE GOVERNMENT EITHER BEFORE OR AFTER SUCH ASSIGNMENT WAS RECEIVED BY THE GOVERNMENT. IT FOLLOWS THAT YOUR RIGHTS UNDER THE ASSIGNMENT CAN BE NO GREATER THAN THOSE OF THE ASSIGNEE BANK. BERKELEY V UNITED STATES, 276 F.2D 9 (1960); UNITED STATES V MUNSEY TRUST CO., 332 U.S. 234 (1947). WHILE YOU ALLEGE THAT CERTAIN GOVERNMENT EMPLOYEES HAD KNOWLEDGE OF YOUR AGREEMENTS, WITH ACA AND WITH THE BANK, THAT ALL PAYMENTS WERE TO BE MADE TO THE BANK FOR DEPOSIT TO YOUR ACCOUNT, NEITHER SUCH AGREEMENT NOR KNOWLEDGE THEREOF BY THE GOVERNMENT COULD OPERATE TO CIRCUMVENT, OR DIVEST THE GOVERNMENT OF THE PROTECTION TO WHICH IT WAS ENTITLED UNDER, THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

ACCORDINGLY, WE REMAIN OF THE OPINION THAT THE GOVERNMENT'S SET-OFF ACTION WAS PROPER, AND THE ABOVE-REFERENCED DISALLOWANCE OF YOUR CLAIM IS THEREFORE SUSTAINED.