B-47159, FEBRUARY 7, 1945, 24 COMP. GEN. 603

B-47159: Feb 7, 1945

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THE ASSIGNEE IS NOT OBLIGATED TO MAKE RESTITUTION OF SUCH OVERPAYMENTS TO THE EXTENT THAT THE CONTRACT PAYMENTS RECEIVED IN GOOD FAITH WERE APPLIED IN REDUCTION OF ADVANCES TO THE ASSIGNOR FOR PERFORMANCE OF THE PARTICULAR CONTRACT INVOLVED. ALTHOUGH WITHOUT NOTICE THAT THE PAYMENTS WERE ERRONEOUS. THE ASSIGNEE IS NOT ENTITLED. TO THE EXTENT THAT ERRONEOUS CONTRACT PAYMENTS RECEIVED IN GOOD FAITH BY A WAR DEPARTMENT CONTRACTOR'S ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 EXCEED THE AMOUNT THE ASSIGNEE IS ENTITLED TO RETAIN AND APPLY IN LIQUIDATION OF ADVANCES TO ITS ASSIGNOR FOR THE PERFORMANCE OF THE PARTICULAR CONTRACT INVOLVED. THERE IS INCLOSED A VOUCHER SUBMITTED TO THE UNDERSIGNED.

B-47159, FEBRUARY 7, 1945, 24 COMP. GEN. 603

ASSIGNMENT OF CONTRACT PAYMENTS - ASSIGNEE'S LIABILITY FOR OVERPAYMENTS IN ORDER FOR BALANCES DUE AN ASSIGNEE UNDER A WAR DEPARTMENT CONTRACT--- EXPRESSLY EXEMPTING PAYMENTS FROM SET-OFF FOR ANY DEBT OF THE ASSIGNOR TO THE UNITED STATES ARISING INDEPENDENTLY OF THAT CONTRACT, AS AUTHORIZED BY THE ASSIGNMENT OF CLAIMS ACT OF 1940--- TO BE SET OFF AGAINST AN OVERPAYMENT TO SAID ASSIGNEE IN CONNECTION WITH AN ASSIGNMENT OF PAYMENTS UNDER ANOTHER CONTRACT WITH THE SAME CONTRACTOR, THE ASSIGNEE MUST BE PERSONALLY OBLIGATED TO MAKE RESTITUTION OF THE OVERPAYMENT. WHERE A CONTRACTOR'S ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 HAD NO NOTICE THAT IT HAD RECEIVED OVERPAYMENTS UNDER THE CONTRACT, ARISING BY REASON OF LATER-DETERMINED EXCESS USE OF GOVERNMENT MATERIAL, UNTIL ITS POSITION WITH RESPECT TO THE ASSIGNOR HAD BEEN CHANGED AND THE ASSIGNOR HAD BECOME INSOLVENT, THE ASSIGNEE IS NOT OBLIGATED TO MAKE RESTITUTION OF SUCH OVERPAYMENTS TO THE EXTENT THAT THE CONTRACT PAYMENTS RECEIVED IN GOOD FAITH WERE APPLIED IN REDUCTION OF ADVANCES TO THE ASSIGNOR FOR PERFORMANCE OF THE PARTICULAR CONTRACT INVOLVED. WHERE A CONTRACTOR'S ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 RECEIVED ERRONEOUS CONTRACT PAYMENTS EXCEEDING THE AMOUNT ADVANCED TO ITS ASSIGNOR FOR PERFORMANCE OF THE PARTICULAR CONTRACT, ALTHOUGH WITHOUT NOTICE THAT THE PAYMENTS WERE ERRONEOUS, THE ASSIGNEE IS NOT ENTITLED, WITHOUT DIRECTION FROM THE ASSIGNOR, TO RETAIN SUCH EXCESS AND APPLY IT TOWARDS LIQUIDATION OF ADVANCES TO THE SAME ASSIGNOR IN CONNECTION WITH AN ASSIGNMENT OF PAYMENTS UNDER ANOTHER CONTRACT. TO THE EXTENT THAT ERRONEOUS CONTRACT PAYMENTS RECEIVED IN GOOD FAITH BY A WAR DEPARTMENT CONTRACTOR'S ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 EXCEED THE AMOUNT THE ASSIGNEE IS ENTITLED TO RETAIN AND APPLY IN LIQUIDATION OF ADVANCES TO ITS ASSIGNOR FOR THE PERFORMANCE OF THE PARTICULAR CONTRACT INVOLVED, SUCH EXCESS MAY BE RECOVERED BY THE GOVERNMENT BE SET OFF OF AMOUNTS OTHERWISE DUE THE ASSIGNEE IN CONNECTION WITH AN ASSIGNMENT OF PAYMENTS UNDER ANOTHER CONTRACT WITH THE SAME CONTRACTOR, NOTWITHSTANDING THE PROVISION OF THE LATTER CONTRACT EXEMPTING PAYMENTS THEREUNDER FROM SET-OFF FOR THE ASSIGNOR'S DEBTS TO THE UNITED STATES ARISING INDEPENDENTLY OF THAT CONTRACT. CONTRACT PAYMENTS OTHERWISE DUE A CONTRACTOR'S ASSIGNEE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 MAY BE SET OFF AGAINST THE CONTRACTOR'S INDEBTEDNESS TO THE UNITED STATES BECAUSE OF EXCESS USE OF GOVERNMENT MATERIAL IN PERFORMING THE CONTRACT--- CLAIMS BY AN ASSIGNEE IN SUCH A SITUATION BEING SUBJECT TO ALL DEFENSES AND ALL RIGHTS OF SET OFF ARISING OUT OF THE ASSIGNED OBLIGATION AS WOULD BE AVAILABLE TO THE GOVERNMENT AGAINST THE CONTRACTOR-ASSIGNOR.

COMPTROLLER GENERAL WARREN TO COL. GEORGE DOBERT, U.S. ARMY, FEBRUARY 7, 1945:

THERE HAS BEEN RECEIVED BY SECOND INDORSEMENT OF JANUARY 17, 1945, FROM THE FISCAL DIRECTOR, ARMY SERVICE FORCES, YOUR LETTER OF JANUARY 3, 1945, AS FOLLOWS:

1. THERE IS INCLOSED A VOUCHER SUBMITTED TO THE UNDERSIGNED, A DISBURSING OFFICER OF THE UNITED STATES ARMY, FOR PAYMENT. THE CLAIM IS FOR $1,337.50, AND WAS SUBMITTED UNDER CONTRACT W 431 QM 9932 DATED 11 AUG. 1942. IT IS REQUESTED THAT THE QUESTION PRESENTED BE SUBMITTED TO THE COMPTROLLER GENERAL OF THE UNITED STATES.

2. DOUBT ARISES AS TO THE LEGALITY OF THE PROPOSED PAYMENT BECAUSE THE INTERMEDIATE FACTORS CORPORATION ADVANCED MONEY TO THE CONTRACTOR, OMAR FABRICS CO., INC., UNDER TWO CONTRACTS. THE RECORDS OF THE JEFFERSONVILLE QUARTERMASTER DEPOT SHOW THAT $1,337.50 IS DUE UNDER CONTRACT W 431 QM 9932 DATED 11 AUG. 1942, BUT THE CONTRACTOR OWES THE UNITED STATES $7,748.55 BECAUSE OF EXCESS GOVERNMENT MATERIALS USED UNDER CONTRACT W 431 QM 8482. IF THE INDEBTEDNESS UNDER THE LATTER CONTRACT MAY BE SET-OFF AGAINST THE AMOUNT DUE UNDER CONTRACT W 431 QM 9932, THE INTERMEDIATE FACTORS CORPORATION HAS ALREADY BEEN OVERPAID.

AS STATED BY YOU, IT APPEARS THE OMAR FABRICS CO. INC., HAD TWO CONTRACTS WITH THE GOVERNMENT, THE PAYMENTS UNDER WHICH IT ASSIGNED, FOR A VALUABLE CONSIDERATION AND TO SECURE ADVANCES MADE TO IT, TO THE INTERMEDIATE FACTOR CORPORATION. PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, 54 STAT. 1029, 31 U.S.C. 203, EACH CONTRACT CONTAINED THE FOLLOWING PROVISION:

PAYMENTS TO AN ASSIGNEE OF ANY CLAIMS ARISING UNDER THIS CONTRACT SHALL NOT BE SUBJECT TO REDUCTION OR SET-OFF FOR ANY INDEBTEDNESS OF THE ASSIGNOR TO THE UNITED STATES ARISING INDEPENDENTLY OF THIS CONTRACT.

PAYMENTS IN FULL WERE MADE BY THE GOVERNMENT TO THE ASSIGNEE FOR DELIVERIES MAY BY THE CONTRACTOR UNDER CONTRACT NO. 431 QM 8482, HEREAFTER CALLED "CONTRACT NO. 1," BUT A SUBSEQUENT AUDIT SHOWED THAT MATERIAL OF THE VALUE OF $7,748.55, FURNISHED BY THE UNITED STATES TO THE CONTRACTOR HAD NOT BEEN PROPERLY ACCOUNTED FOR BY THE LATTER. HAD THIS BEEN KNOWN AT THE TIME PAYMENTS WERE BEING MADE, UNDER SAID CONTRACT, SUCH SUM WOULD HAVE BEEN DEDUCTED FROM THE AMOUNTS FOUND OWING TO THE CONTRACTOR AND PAYABLE TO THE ASSIGNEE. THERE IS NOW DUE UNDER THE OTHER CONTRACT, NO. W 431 QM 9932, HEREAFTER CALLED "CONTRACT NO. 2," A BALANCE OF $1,337.50, COMPRISED OF THE SUM OF $3,580.87, WITHHELD FROM PREVIOUS PAYMENTS THEREUNDER, LESS THE AMOUNT OF $2,243.37, REPRESENTING THE VALUE OF GOVERNMENT MATERIALS FURNISHED TO THE CONTRACTOR UNDER SAID CONTRACT FOR WHICH THE LATTER HAS NOT ACCOUNTED. THE QUESTION PRESENTED IS WHETHER THE AFORESAID EXCESS PAYMENTS IN THE SUM OF $7,748.55 MADE BY THE GOVERNMENT UNDER CONTRACT NO. 1 MAY BE LIQUIDATED IN PART BY THE SET-OFF OF THE BALANCE DUE UNDER CONTRACT NO. 2 AGAINST SAID AMOUNT.

THE ANSWER TO SUCH QUESTION IS DEPENDENT ON WHETHER IT MAY BE SAID THAT THE ASSIGNEE LEGALLY IS OBLIGATED TO MAKE RESTITUTION OF THE SAID OVERPAYMENT OF $7,748.55 TO THE GOVERNMENT FOR, UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 AND THE CONTRACT, NO SET-OFF OF AMOUNTS DUE UNDER CONTRACT NO. 2 MAY BE MADE AS A RESULT OF THE CONTRACTOR'S INDEBTEDNESS TO THE GOVERNMENT UNDER CONTRACT NO. 1. IN OTHER WORDS, THERE MUST BE A DETERMINATION THAT THE ASSIGNEE IS PERSONALLY LIABLE FOR THE OVERPAYMENT BEFORE SET-OFF WOULD BE PROPER.

IN CONNECTION WITH THE MATTER IT HAS BEEN NOTED THAT, WHILE THE PAPERS FORWARDED WITH YOUR LETTER INDICATE THAT SIGNED INVOICES HAVE BEEN SUBMITTED BY THE CONTRACTOR ON WHICH PAYMENT IS CLAIMED OF THE SUM OF $3,580.87 AS THE BALANCE DUE UNDER CONTRACT NO. 2, THE SIGNED INVOICES ARE NOT ATTACHED TO THE INSTANT VOUCHER AND THE VOUCHER ITSELF IS NOT SIGNED BY THE CONTRACTOR. HOWEVER, IT IS ASSUMED THAT THE REFERRED-TO SIGNED INVOICES ARE IN THE POSSESSION EITHER OF YOUR OFFICE OR OF THE OFFICE OF THE COMMANDING GENERAL, JEFFERSONVILLE QUARTERMASTER DEPOT AND, THEREFORE A DECISION WILL BE MADE AT THIS TIME ON THE QUESTION PRESENTED IN YOUR LETTER.

AMONG THE PAPERS FORWARDED WITH YOUR LETTER IS A MEMORANDUM OF LAW AND SUPPLEMENT THERETO FILED ON BEHALF OF THE ASSIGNEE, TOGETHER WITH AN AFFIDAVIT OF FACTS BY THE PRESIDENT OF THE ASSIGNEE. IT IS STATED IN THE LATTER INSTRUMENT THAT MONEYS DUE OR TO BECOME DUE UNDER CONTRACT NO. 1 WERE ASSIGNED BY THE CONTRACTOR TO THE ASSIGNEE ON JUNE 12, 1942, AND THAT SUCH ASSIGNMENT WAS MADE PURSUANT TO AN AGREEMENT BETWEEN THE PARTIES WHEREBY THE ASSIGNEE AGREED TO MAKE ADVANCES TO THE CONTRACTOR TO ENABLE IT TO PURCHASE AND PAY FOR THE NECESSARY MATERIAL AND LABOR REQUIRED FOR THE PERFORMANCE OF THE CONTRACT. ALSO, IT IS STATED THAT THE PARTIES AGREED FURTHER THAT, AS EACH SHIPMENT WAS MADE BY THE CONTRACTOR, THE ORIGINAL INVOICE AND NOTICE OF ASSIGNMENT WERE TO BE DELIVERED TO THE ASSIGNEE UPON THE RECEIPT OF WHICH THE ASSIGNEE WOULD MAKE ADDITIONAL ADVANCES TO THE EXTENT OF 50 PERCENT OF THE INVOICES PROVIDED THAT THE CONTRACTOR WAS NOT THEN IN DEFAULT WITH RESPECT TO ANY OF ITS OBLIGATIONS TO THE ASSIGNEE. THE MONEYS RECEIVED PURSUANT TO THE ASSIGNMENT WERE TO BE APPLIED IN REDUCTION OF THE CONTRACTOR'S INDEBTEDNESS TO THE ASSIGNEE. IT IS STATED FURTHER THAT PURSUANT TO SUCH AGREEMENT THE ASSIGNEE ADVANCED THE SUM OF $10,969.67 TO THE CONTRACTOR UP TO SEPTEMBER 8, 1942, THE DATE ON WHICH THE FIRST SHIPMENT WAS MADE UNDER THE CONTRACT. FURTHERMORE, IT IS STATED THAT, UPON THE RECEIPT OF THE VARIOUS PAYMENTS MADE UNDER THE CONTRACT, THE ASSIGNEE MADE ADDITIONAL ADVANCES TO THE CONTRACTOR TO THE EXTENT OF 50 PERCENT OF THE CONTRACTOR'S INVOICES AND THAT, ON JANUARY 18, 1943, WHEN THE GOVERNMENT MADE FINAL PAYMENT UNDER SAID CONTRACT NO. 1, THE AMOUNT THEREOF WAS CREDITED AGAINST THE BALANCE OF THE CONTRACTOR'S INDEBTEDNESS ARISING BY REASON OF THE ADVANCES MADE TO IT, LEAVING A CREDIT OF $162.08 IN THE CONTRACTOR'S FAVOR. MOREOVER, THE AFFIDAVIT STATES THAT A SIMILAR ARRANGEMENT WAS MADE BETWEEN THE CONTRACTOR AND ITSELF FOR THE FINANCING OF CONTRACT NO. 2 AND THAT THERE IS A BALANCE OF $4,113.48 DUE FROM THE CONTRACTOR TO THE ASSIGNEE ON ACCOUNT OF THE ADVANCES MADE AGAINST SUCH CONTRACT. IT IS ALLEGED IN THE AFFIDAVIT THAT THE ASSIGNEE WOULD NOT HAVE MADE ADVANCES UNDER THE SECOND CONTRACT TO THE EXTENT THAT IT DID IF IT HAD HAD KNOWLEDGE AT THE TIME OF THE FACT THAT THE CONTRACTOR HAD BEEN OVERPAID UNDER CONTRACT NO. 1 TO THE EXTENT OF $7,748.55. THE ASSIGNEE ALSO STATES THAT THE CONTRACTOR WENT OUT OF BUSINESS IN JULY, 1944, AT WHICH TIME IT WAS DISPOSSESSED FROM ITS PLACE OF BUSINESS AND ITS MACHINERY WAS REPOSSESSED BY THE OWNER THEREOF. FINALLY, IT IS ALLEGED THAT THE CONTRACTOR HAS BEEN INSOLVENT FOR THE PAST YEAR AND A HALF.

ALSO, WHILE THE RECORD INDICATES THAT AN AUDIT OF THE CONTRACTOR'S RECORDS WAS INSTITUTED IN MARCH 1943--- AT WHICH TIME THE QUANTITY OF TENTS CALLED FOR BY CONTRACT NO. 1 WAS REDUCED FROM 120,000 TO 61,300-- TO DETERMINE IF THE CONTRACTOR HAD ACCOUNTED FOR ALL MATERIALS FURNISHED BY THE GOVERNMENT THEREUNDER, IT APPEARS THAT THE CONTRACTOR WAS NOT NOTIFIED OF THE FACT THAT IT HAD USED GOVERNMENT MATERIALS IN EXCESS OF THE CONTRACT ALLOWANCES UNTIL SEPTEMBER 20, 1944. THERE IS NO EVIDENCE OF RECORD SHOWING WHETHER OR NOT THE CONTRACTOR OR ASSIGNEE RECEIVED NOTICE, PRIOR TO SUCH DATE, OF THE FACT THAT AN OVERPAYMENT HAD BEEN MADE UNDER CONTRACT NO. 1 BY REASON OF THE USE OF EXCESS MATERIALS BY THE CONTRACTOR.

EXAMINATION OF THE REFERENCES CITED IN THE AFORESAID MEMORANDUMS OF LAW AND OF OTHER AUTHORITIES DISCLOSES THAT THE COURTS HAVE STATED THAT WHERE MONEY HAS BEEN PAID TO AN ASSIGNEE AS THE RESULT OF FRAUD OR MISTAKE BETWEEN THE ORIGINAL PARTIES AND THE ASSIGNEE RECEIVES THE SAME IN GOOD FAITH WITHOUT KNOWLEDGE OF THE MISTAKE OR FRAUD AND HAS PARTED WITH VALUE THEREFOR, NO RECOVERY MAY BE HAD AGAINST HIM. FIDELITY MUTUAL LIFE INS. CO. V. CLARK, 203 U.S. 64; UNION CENTRAL LIFE CO. V. GLASSOCK, 270 KY. 750, 110 S.W.2D 681, 114 A.L.R. 373; MERCHANTS INS. CO. V. ABBOTT, 131 MASS. 397; AND SEE 5 WILLISTON, CONTRACTS (REV. ED.) SECTION 1574, 1531, N. 4; RESTATEMENT, RESTITUTION 14 (2). HOWEVER, IT IS NOT CLEAR AS TO WHETHER, IN ORDER TO RETAIN PAYMENT, THE PAYEE MUST SHOW, ALSO, THAT HE HAS CHANGED HIS POSITION IN RELIANCE ON THE PAYMENT OR THAT HIS DEBTOR HAS BECOME INSOLVENT BETWEEN THE DATE OF THE ERRONEOUS PAYMENT AND THE DATE ON WHICH DEMAND IS MADE FOR RESTITUTION. SEE LAWRENCE V. AMERICAN NATIONAL BANK, 54 N.Y. 432; BALL V. SHEPARD, 202 N.Y. 247, 95 N.E. 719; AND JEFFERSON COUNTY V. MCGRATH, 205 KY. 494, 266 S.W. 29.

IN THE INSTANT CASE IT APPEARS TO BE ESTABLISHED THAT AT THE TIME THE ASSIGNEE RECEIVED THE PAYMENTS UNDER CONTRACT NO. 1, IT DID SO IN GOOD FAITH AND WITHOUT KNOWLEDGE OF THE FACT THAT THE CONTRACTOR HAD USED GOVERNMENT MATERIALS IN EXCESS OF THE ALLOWANCE AUTHORIZED IN SAID CONTRACT AND, CONSEQUENTLY, WAS NOT ENTITLED TO THE FULL AMOUNTS WHICH HAD BEEN APPROVED FOR PAYMENT THEREUNDER. ALSO, IT APPEARS THAT THE AMOUNTS SO RECEIVED WERE APPLIED BY THE ASSIGNEE IN LIQUIDATION OF THE INDEBTEDNESS OF THE CONTRACTOR ARISING FROM THE ADVANCES MADE BY THE ASSIGNEE TO IT DURING THE COURSE OF THE PERFORMANCE OF CONTRACT NO. 1 WITH THE EXCEPTION OF $162.08, WHICH AMOUNT WAS APPLIED BY THE ASSIGNEE AGAINST THE INDEBTEDNESS OF THE CONTRACTOR TO IT ARISING UNDER CONTRACT NO. 2. ACCORDINGLY, IF IT BE ADMINISTRATIVELY VERIFIED THAT NOTICE OF THE OVERPAYMENT UNDER CONTRACT NO. 1 WAS NOT GIVEN TO THE ASSIGNEE UNTIL AFTER THE LATTER HAD CHANGED ITS POSITION WITH RESPECT TO THE DEBTOR IN RELIANCE ON THE PAYMENTS AS MADE TO IT THEREUNDER, OR UNTIL AFTER THE CONTRACTOR HAD BECOME INSOLVENT, SO THAT, IN EITHER EVENT, THE ASSIGNEE IS NOW UNABLE TO EFFECT RECOVERY OF THE AMOUNT OF THE OVERPAYMENT FROM THE CONTRACTOR, THERE APPEARS TO BE NO LEGAL BASIS ON WHICH THE ASSIGNEE MAY BE SAID TO BE OBLIGATED TO MAKE RESTITUTION OF THE OVERPAYMENTS UNDER CONTRACT NO. 1 TO THE EXTENT OF THE ADVANCES MADE BY IT UNDER SAID CONTRACT; AND, CONSEQUENTLY, THAT SET-OFF OF THE ENTIRE SUM OF $1,337.50, THE BALANCE FOUND TO BE OWING UNDER CONTRACT NO. 2, MAY NOT BE APPLIED IN LIQUIDATION OF THE OVERPAYMENT MADE UNDER CONTRACT NO. 1.

HOWEVER, IT APPEARS FROM THE AFORESAID AFFIDAVIT OF THE ASSIGNEE THAT IT RECEIVED FROM THE GOVERNMENT AS PAYMENTS UNDER CONTRACT NO. 1, $162.08 MORE THAN IT ADVANCED TO THE CONTRACTOR UNDER SAID CONTRACT. SINCE THE CONTRACTOR'S ASSIGNMENT OF ALL MONEYS DUE OR TO BECOME DUE UNDER SAID CONTRACT NO. 1 WAS ONLY FOR SECURITY PURPOSES FOR THE ADVANCES MADE BY THE ASSIGNEE UNDER SAID CONTRACT, AND CONSTITUTED NO MORE THAN A PLEDGE OF THE CONTRACTOR'S CHOSE IN ACTION AGAINST THE GOVERNMENT, TITLE TO THE $162.08 BELONGED TO THE CONTRACTOR AT THE TIME THE PAYMENT THEREOF WAS RECEIVED BY THE ASSIGNEE. SEE FAIRBANKS V. SARGENT, 117 N.Y. 30, 22 N.E. 1039. SUCH FACT WAS RECOGNIZED BY THE ASSIGNEE IN UNDERTAKING TO CREDIT THIS SUM AGAINST THE ADVANCES WHICH IT HAD MADE UNDER CONTRACT NO. 2. BUT THE LAW IS WELL SETTLED THAT THE PROCEEDS OF A CHOSE IN ACTION OR OTHER PROPERTY PLEDGED TO SECURE A GIVEN DEBT CANNOT, WITHOUT THE DIRECTION OF THE DEBTOR, BE APPLIED TOWARD THE PAYMENT OF OTHER DEBTS OR CLAIMS. ARMSTRONG V. CHEMICAL NATIONAL BANK, 41 F. 234, 6 L.R.A. 226; FIRST NATIONAL BANK V. JACKSON, 140 OKLA. 282, 283 PAC. 242, 68 A.L.R. 900. THEREFORE, IN THE ABSENCE OF EVIDENCE ESTABLISHING THAT, AT THE TIME THE SUM OF $162.08 WAS APPLIED AS A CREDIT AGAINST THE CONTRACTOR'S INDEBTEDNESS UNDER CONTRACT NO. 2, THE ASSIGNEE HAD RECEIVED DIRECTIONS FROM THE CONTRACTOR TO TAKE SUCH ACTION, THE SUM OF $162.08 MUST BE TREATED AS THE PROPERTY OF THE CONTRACTOR AND THUS IS NOT CLOTHED WITH THE IMMUNITY FROM RESTITUTION WHICH APPERTAINS TO THE OTHER PAYMENTS THAT WERE MADE TO THE ASSIGNEE UNDER CONTRACT NO. 1.

ALSO, IT IS NOTED THAT, IN ITS AFFIDAVIT OF FACTS, THE ASSIGNEE IS CLAIMING THE SUM OF $3,580.87 AS THE ENTIRE BALANCE REMAINING DUE UNDER CONTRACT NO. 2, WHEREAS THE AMOUNT STATED ON THE VOUCHER AS BEING PAYABLE THEREUNDER IS $1,337.50. THE DIFFERENCE BETWEEN THESE TWO SUMS, OR $2,243.37, REPRESENTS THE AMOUNT DUE TO THE GOVERNMENT FOR EXCESS MATERIALS USED BY THE CONTRACTOR IN PERFORMING CONTRACT NO. 2. TO THE EXTENT OF SUCH DIFFERENCE THE ASSIGNEE'S CLAIM IS UNFOUNDED BECAUSE SUCH PORTION OF ITS CLAIM IS SUBJECT TO ALL DEFENSES AND ALL RIGHTS OF SET-OFF ARISING OUT OF THE ASSIGNED OBLIGATION (CONTRACT NO. 2) AS WOULD BE AVAILABLE TO THE GOVERNMENT AGAINST THE CONTRACTOR ASSIGNOR. SEE MERCHANTS INS. CO. V. ABBOTT, SUPRA, AT 400; 2 WILLISTON OP. CIT. SUPRA, SECTION 432.

ACCORDINGLY, YOU ARE ADVISED THAT PAYMENT OF THE SUM OF $1,337.50 LESS $162.08, OR $1,175.42 TO THE ASSIGNEE IS AUTHORIZED, PROVIDED THAT AN ADMINISTRATIVE VERIFICATION OF THE FACTS AS SET FORTH ABOVE IS MADE AND EVIDENCE TO SUCH EFFECT IS ATTACHED TO THE VOUCHER.