B-27092, JULY 18, 1942, 22 COMP. GEN. 44

B-27092: Jul 18, 1942

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IS NOT A "FINANCING INSTITUTION" TO WHICH MONEYS DUE OR TO BECOME DUE UNDER A GOVERNMENT CONTRACT MAY BE ASSIGNED UNDER AUTHORITY OF THE ASSIGNMENT OF CLAIMS ACT OF 1940. 20 COMP. 1942: I HAVE YOUR LETTERS OF JUNE 27 AND JULY 4. EACH OF WHICH IS IN EXCESS OF $1. " INFORMATION WAS RECEIVED FROM THE ASSIGNEE THAT IT HAS BEEN FINANCING CANNERS ON THE EASTERN SHORES OF MARYLAND AND CONTIGUOUS AREA FOR MANY YEARS UNDER A FACTOR'S CONTRACT WITH THE CANNERS. THE ASSIGNEE FURTHER STATED THAT SUCH AN AGREEMENT ON THE FORM INDICATED WAS MADE WITH W. A COPY OF THE FORM OF AGREEMENT IS FORWARDED HEREWITH FOR DECISION AS TO WHETHER THE FIRM OF ALBERT W. IS A FINANCING INSTITUTION WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

B-27092, JULY 18, 1942, 22 COMP. GEN. 44

ASSIGNMENT OF CONTRACT PAYMENTS - INTERPRETATION OF TERM "FINANCING INSTITUTION" A BUSINESS CONCERN WHICH, MERELY AS AN INCIDENT TO ITS PRINCIPAL BUSINESS OF ACTING AS SELLING AGENT FOR PACKERS OF FOOD PRODUCTS, ADVANCES MONEY TO THE PACKERS TO PAY FOR RAW MATERIALS, LABOR, ETC., IS NOT A "FINANCING INSTITUTION" TO WHICH MONEYS DUE OR TO BECOME DUE UNDER A GOVERNMENT CONTRACT MAY BE ASSIGNED UNDER AUTHORITY OF THE ASSIGNMENT OF CLAIMS ACT OF 1940. 20 COMP. GEN. 415, DISTINGUISHED.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JULY 18, 1942:

I HAVE YOUR LETTERS OF JUNE 27 AND JULY 4, 1942, AS FOLLOWS:

THE VETERANS' ADMINISTRATION HAS ENTERED INTO CONTRACTS FOR ASPARAGUS, CANNED, WITH W. L. WHEATLEY AND SON, CLAYTON, DELAWARE, EACH OF WHICH IS IN EXCESS OF $1,000, AND THE CONTRACTOR HAS ASSIGNED HIS CLAIMS THEREUNDER TO ALBERT W. SISK AND SON, PRESTON, MARYLAND, PURSUANT TO THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, PUBLIC NO. 811, 76TH CONGRESS, WHICH AUTHORIZES ASSIGNMENT TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION.

UPON INQUIRY AS TO WHETHER THE FIRM OF ALBERT W. SISK AND SON COMES WITHIN THE CATEGORY OF ,FINANCING INSTITUTION," INFORMATION WAS RECEIVED FROM THE ASSIGNEE THAT IT HAS BEEN FINANCING CANNERS ON THE EASTERN SHORES OF MARYLAND AND CONTIGUOUS AREA FOR MANY YEARS UNDER A FACTOR'S CONTRACT WITH THE CANNERS, AND IN SUPPORT OF SUCH STATEMENT HAS PRESENTED A COPY OF THE FORM OF AGREEMENT MADE IN SUCH FINANCIAL TRANSACTIONS. THE ASSIGNEE FURTHER STATED THAT SUCH AN AGREEMENT ON THE FORM INDICATED WAS MADE WITH W. L. WHEATLEY AND SON, CLAYTON, DELAWARE.

A COPY OF THE FORM OF AGREEMENT IS FORWARDED HEREWITH FOR DECISION AS TO WHETHER THE FIRM OF ALBERT W. SISK AND SON, PRESTON, MARYLAND, IS A FINANCING INSTITUTION WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

IT WILL BE APPRECIATED IF YOU WILL GIVE THIS YOUR USUAL PROMPT ATTENTION.

SUPPLEMENTING MY LETTER TO YOU OF JUNE 27, 1942, REQUESTING DECISION AS TO WHETHER ALBERT W. SISK AND SON, PRESTON, MARYLAND IS A "FINANCING INSTITUTION" WITHIN THE MEANING OF THE " ASSIGNMENT OF CLAIMS ACT OF 1940," I AM FORWARDING HEREWITH LETTER OF JULY 3, 1942, FROM ALBERT W. SISK AND SON, IN WHICH THAT CONCERN FURTHER EXPLAINS ITS FINANCIAL OPERATIONS.

APROPOS THIS MATTER, IT APPEARS THAT THE CASE OF ALBERT W. SISK AND SON IS SIMILAR TO THAT OF MUNICIPAL FACTORS COMPANY DISCUSSED IN 20 COMP. GEN. 415.

PLEASE RETURN THE ENCLOSURE WITH YOUR REPLY.

THE LETTER FROM ALBERT W. SISK AND SON, DATED JULY 3, 1942, IS, IN PART, AS FOLLOWS:

REFERENCE IS NOW MADE, INCIDENTALLY, TO YOUR LETTER OF JUNE 18TH AND THE MATTER OF OUR BEING CLASSED BY THE COMPTROLLER GENERAL AS A "FINANCING INSTITUTION.'

SUPPLEMENTING THE RESUME YOU SO KINDLY SENT TO THE COMPTROLLER GENERAL, WE WANTED TO ADD THE FOLLOWING FACTS:

ALBERT W. SISK AND SON IS A PARTNERSHIP HAVING BEEN IN BUSINESS SINCE 1891.

DURING THE YEAR 1942 WE WILL FINANCE FIFTY-ONE (51) CANNERS IN THE STATES OF MARYLAND, DELAWARE, VIRGINIA, PENNSYLVANIA, AND WEST VIRGINIA; MOST OF THESE CANNERS OPERATING ON TOMATOES, WHICH VEGETABLE IS VITALLY NEEDED FOR THE WAR EFFORT.

THESE CANNERS WILL REQUIRE RAW PRODUCE FROM APPROXIMATELY 21,000 ACRES AND THE EMPLOYEES INVOLVED SHOULD BE BETWEEN 5,000 AND 6,000.

THE PRODUCTION, IF EVERYTHING GOES WELL, SHOULD BE SOMEWHERE IN THE NEIGHBORHOOD OF 2,600,000 CASES OF VARIOUS SIZES TOMATOES AND, TO A SMALL EXTENT, OTHER VEGETABLES.

AS YOU HAVE ALREADY ADVISED THE COMPTROLLER GENERAL'S OFFICE, WE OPERATE ON A FACTORING CONDITIONAL SALES CONTRACT WHICH IS RECORDED IN THE COUNTY SEAT AS A PERPETUAL LIEN, THIS CONTRACT BEING RECORDED EARLY IN THE SEASON BEFORE OPERATIONS ARE BEGUN SO AS TO GIVE EVERYONE NOTICE OF OUR PRIOR CLAIM ON THE ASSETS OF THE CANNER INVOLVED.

FOR ALMOST FIFTY-TWO YEARS WE HAVE BEEN BILLING ALL OF THIS MERCHANDISE, COLLECTING THE MONEY FROM THE BUYER, AND PLACING SAME TO THE CREDIT OF THE PACKER'S ACCOUNT ON OUR BOOKS, ETC.

WE DO NOT KNOW OF ANOTHER FIRM IN THE CANNED GOODS BUSINESS THAT OPERATES IN THE SAME WAY IN WHICH WE DO.

OUR MAIN OFFICE IS AT PRESTON, MARYLAND, WHERE IT HAS BEEN FOR FIFTY-TWO YEARS. WE HAVE A BRANCH SELLING OFFICE AT ABERDEEN, MARYLAND, WHICH HAS BEEN IN OPERATION SINCE 1927, AND A BRANCH SELLING OFFICE IN BOSTON, MASSACHUSETTS, WHICH HAS BEEN IN OPERATION SINCE 1940.

WE FEEL THAT WE PERFORM A VERY REAL SERVICE IN THESE VARIOUS COMMUNITIES TO THESE FIFTY-ONE CANNERS AND ALL THEIR CONNECTIONS, AND WE MAKE IT LARGELY POSSIBLE FOR THIS ADDITIONAL VERY LARGE PRODUCTION OF CANNED TOMATOES.

THE AGREEMENT FORM ENCLOSED WITH YOUR LETTER OF JUNE 27, 1942, THROWS SOME LIGHT ON THE NATURE OF THE USUAL BUSINESS ARRANGEMENT BETWEEN ALBERT W. SISK AND SON AS "FACTORS" AND THE VARIOUS ,PACKERS" WITH WHICH IT HAS DEALINGS. THE FACTOR AGREES TO FURNISH AND THE PACKER TO PURCHASE ALL THE CANS, CASES, AND LABELS REQUIRED BY THE PACKER FOR THE CURRENT CANNING SEASON AT PRICES SPECIFIED IN THE CONTRACT. VARIOUS PROVISIONS DESIGNED TO PROTECT THE INTERESTS OF THE FACTOR IN THIS UNDERTAKING FOLLOW. HOWEVER, FOR PRESENT PURPOSES, THE FOLLOWING LANGUAGE WOULD APPEAR MOST RELEVANT AND MATERIAL:

SHOULD FACTORS FURNISH PACKER WITH MONEY TO PAY FOR RAW MATERIALS OR LABOR INCIDENT TO THE PACKING OF CANNED GOODS AT PACKER'S AFORESAID FACTORY, WHETHER PACKED IN CANS AND CASES HEREIN MENTIONED, OR OTHERWISE, FACTORS ARE HEREBY VESTED WITH TITLE TO SAID CANNED GOODS AND PACKER SHALL EXECUTE SPECIFIC BILLS OF SALE THEREFOR, IF REQUIRED BY FACTORS, AS SECURITY FOR THE PAYMENT OF SUCH CASH ADVANCES, AND, IN ADDITION, FACTORS MAY, AT THEIR OPTION, EXERCISE, WITH RESPECT TO SUCH CANNED GOODS, ALL RIGHTS HEREIN CONFERRED UPON THEM WITH RESPECT TO THE OBTAINING OF POSSESSION AND THE SALE OF CANNED GOODS PACKED IN THE CANS AND CASES TO BE FURNISHED AND SOLD HEREUNDER.

FACTORS SHALL HAVE THE EXCLUSIVE RIGHT TO DISPOSE AND INVOICE ALL CANNED GOODS PACKED BY PACKER IN THE AFORESAID CANS AND CASES, AND, UNLESS WAIVED ORALLY OR IN WRITING BY PACKER, FACTORS SHALL GUARANTEE PAYMENT OF SUCH SALES WHEN SUCH CANNED GOODS HAVE BEEN SHIPPED BY PACKER IN ACCORDANCE WITH INSTRUCTIONS OF FACTORS AND HAVE BEEN DELIVERED TO AND ACCEPTED BY BUYERS, AND FACTORS SHALL RECEIVE THE PROCEEDS FROM ALL SUCH SALES, AND SHALL APPLY THE SAME, OR SO MUCH THEREOF AS MAY BE NECESSARY, TO THE PAYMENT OF ACCOUNTS OR NOTES PAYABLE TO FACTORS FOR CANS, CASES, AND LABELS FURNISHED BY FACTORS HEREUNDER, AND FOR ANY MONEY ADVANCE BY OR DUE FACTORS, INCLUDING THE SERVICE CHARGE HEREINAFTER REFERRED TO, UNDER THE TERMS OF THIS AGREEMENT OR ANY OTHER AGREEMENTS BETWEEN THE PARTIES HERETO, AND FACTORS SHALL PAY OVER ANY BALANCE THEREAFTER REMAINING TO PACKER OR TO WHOMSOEVER SHALL BE LAWFULLY ENTITLED THERETO.

TO COMPENSATE FACTORS FOR THE SERVICE TO BE PERFORMED HEREUNDER BY THEM FOR PACKER, FACTORS SHALL BE ENTITLED TO COMPENSATION AT THE RATE OF 1 PERCENT (1 PERCENT) OF THE GROSS AMOUNT DERIVED FROM THE SALE OF CANNED GOODS PACKED BY PACKER UNDER AND PURSUANT TO THE TERMS AND PROVISIONS OF THIS AGREEMENT.

THE STANDARDS BY WHICH IT MAY BE DETERMINED WHETHER A PARTICULAR CONCERN IS A "FINANCING INSTITUTION" WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, 54 STAT. 1029, ARE NOT SET OUT IN THE ACT ITSELF. HOWEVER, THAT PORTION OF THE TEXT WHICH DESIGNATES PERMISSIBLE ASSIGNEES AS ANY "BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION INCLUDING ANY FEDERAL LENDING AGENCY," EXPRESSES A CLEAR INTENT THAT THE TERM "FINANCING INSTITUTION" WAS NOT MEANT TO INCLUDE EVERY BUSINESS ORGANIZATION THAT MIGHT FIND IT CONVENIENT OR NECESSARY IN THE COURSE OF ITS BUSINESS DEALINGS TO EXTEND CREDIT OR MAKE LOANS TO ITS REGULAR BUSINESS CLIENTS OR CUSTOMERS. 21 COMP. GEN. 120, 121. RATHER, A "FINANCING INSTITUTION" MIGHT BE DEFINED IN A GENERAL WAY AS AN INDIVIDUAL, PARTNERSHIP, OR CORPORATION DEALING IN MONEY AS DISTINGUISHED FROM OTHER COMMODITIES AS A PRIMARY FUNCTION OF ITS BUSINESS ACTIVITY. SEE, IN THIS CONNECTION, MORRIS PLAN CO. OF SAN FRANCISCO V. JOHNSON, 100 P. (2D) 493.

THERE IS AMPLE EVIDENCE THAT THE PRIMARY BUSINESS FUNCTION OF ALBERT W. SISK AND SON IS THAT OF SELLING AGENT FOR CERTAIN PACKERS. THE AGREEMENT QUOTED IN PART ABOVE GIVES THIS FIRM "EXCLUSIVE RIGHT TO DISPOSE OF AND INVOICE ALL CANNED GOODS PACKED BY PACKER IN THE AFORESAID CANS AND CASES.' FOR SERVICES RENDERED TO THE PACKER UNDER THE CONTRACT, THE FACTOR RECEIVES A SERVICE CHARGE. BRANCH SELLING OFFICES ARE MAINTAINED IN ABERDEEN, MARYLAND, AND BOSTON, MASSACHUSETTS. THE LETTERHEAD ON THE COMPANY'S STATIONERY CONTAINS THE WORDS " CANNED FOODS AND CANNERS' SUPPLIES" UNDER THE FIRM NAME. OTHER PRINTED MATTER ON THE STATIONERY STATES THAT THE CONCERN IS THE SOLE DISTRIBUTOR OF CERTAIN SPECIFIED PRODUCTS. SOME OF THESE ELEMENTS ARE OF MINOR IMPORTANCE EXCEPT INSOFAR AS THEY CONTRIBUTE TO A GENERAL PICTURE OF THE NATURE OF THE FIRM'S BUSINESS.

THE AGREEMENT DOES CONTEMPLATE AN EXTENSION OF CREDIT TO THE PACKER AT A SET RATE OF INTEREST FOR WHATEVER CANS, CASES, AND LABELS ARE REQUIRED BY THE PACKER. IT MAY BE, ALSO, THAT IT IS NECESSARY OR AT LEAST GOOD BUSINESS PRACTICE FOR THE FACTOR TO ADVANCE MONEY TO A PACKER FOR THE PURPOSE OF PAYING FOR RAW MATERIALS AND LABOR NEEDED IN THE CANNING PROCESS. HOWEVER, THERE IS NO EVIDENCE THAT THE FIRM HOLDS ITSELF OUT TO THE GENERAL PUBLIC AS A LENDING OR FINANCING INSTITUTION, THAT IT LENDS MONEY TO OTHER THAN THE PACKERS WHOSE CANNED FOODS IT DISTRIBUTES, OR THAT LOANS ARE MADE OR CREDIT EXTENDED FOR ANY PURPOSES OTHER THAN THOSE CONNECTED WITH AND INCIDENTAL TO THE BUSINESS OF DISTRIBUTING THESE PRODUCTS. HENCE, IT MUST BE CONCLUDED THAT THESE CREDIT EXTENSION AND LENDING OPERATIONS ARE MERELY SUBSIDIARY TO THE PRINCIPAL BUSINESS OF THE FIRM AND, BEING OF SECONDARY IMPORTANCE, DO NOT HAVE THE EFFECT OF IMPRESSING ON THE FIRM THE STAMP OF ,FINANCING INSTITUTION.'

IT HAS BEEN SUGGESTED THAT THE CONCERN HERE INVOLVED IS SIMILAR IN NATURE TO MUNICIPAL FACTORS CO. DISCUSSED IN 20 COMP. GEN. 415. HOWEVER, IT WAS STATED IN THE SUBMISSION UPON WHICH THAT DECISION WAS BASED THAT MUNICIPAL FACTORS CO. SOLD NO MERCHANDISE,"WAS CREATED FOR FINANCING IN CONNECTION WITH ACCOUNTS RECEIVABLE" AND THAT "ITS ACTIVITIES ARE RESTRICTED TO FINANCING IN RELATION TO ACCOUNTS RECEIVABLE.' THUS, ALTHOUGH THE CONCERNS IN BOTH INSTANCES MAY BE KNOWN OR DESIGNATED AS FACTORS, THEIR BUSINESS FUNCTIONS WOULD APPEAR TO BE OF A VASTLY DIFFERENT CHARACTER.

ACCORDINGLY, YOU ARE ADVISED THAT, UPON THE FACTS NOW OF RECORD, ALBERT W. SISK AND SON MAY NOT BE CONSIDERED A "FINANCING INSTITUTION" WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

THE LETTER FROM ALBERT W. SISK AND SON ENCLOSED WITH YOUR LETTER OF JULY 4, 1942, IS RETURNED HEREWITH AS REQUESTED.