B-94502, MAY 11, 1950

B-94502, MAY 11, 1950

PRECIS-UNAVAILABLE

CAPTAIN LELAND E. RICE, F.D., U.S. AIR FORCE:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 22, 1950, FORWARDED TO THIS OFFICE BY THE DIRECTOR OF FINANCE, DEPARTMENT OF THE AIR FORCE, WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO THE PROPRIETY OF MAKING PAYMENT ON TWO VOUCHERS TRANSMITTED WITH YOUR LETTER.

THE FACTS IN THE MATTER, AS DISCLOSED BY THE DOCUMENTS ACCOMPANYING YOUR LETTER, ARE AS FOLLOWS:

ON JUNE 27, 1949, CONTRACT NO. AF 41 (157)-31 WAS AWARDED TO ONE M. C. HORTON, TRADING AS M.C. HORTON & COMPANY, BY THE TERMS OF WHICH THE CONTRACTOR AGREED TO INSTALL A FOUR-INCH CONCRETE OVERLAY ON A HANGER FLOOR AT HENSLEY FIELD, DALLAS, TEXAS, FOR THE SUM OF $6,681. IN LIEU OF PERFORMANCE AND PAYMENT BONDS WITH A CORPORATE SURETY, THE CONTRACTOR DEPOSITED WITH THE FINANCE OFFICER, BROOKS AIR FORCE BASE, TEXAS, TWO DEPOSITS OF $3,340.50 EACH AS SECURITY FOR PERFORMANCE OF THE CONTRACT AND FOR PAYMENT OF LABORERS AND MATERIALMEN. WORK WAS BEGUN SEPTEMBER 8 AND COMPLETED SEPTEMBER 16, 1949. HOWEVER, CERTAIN DEFECTS IN THE WORK HAD TO BE REMEDIED, AND BY CHANGE ORDER NO. 1 DATED JANUARY 4, 1950, THE CONTRACTOR WAS GRANTED AN EXTENSION OF TIME TO JANUARY 16, 1950, BY WHICH DATE THE WORK WAS FINALLY COMPLETED SATISFACTORILY.

ON OCTOBER 26, 1949, THE CONTRACTOR ASSIGNED TO THE FIRST NATIONAL BANK IN DALLAS "*** ALL CLAIMS FOR MONIES DUE OR HEREAFTER TO BECOME DUE TO THE CONTRACTOR FROM THE UNITED STATES OF AMERICA, ARISING OUT OF THE SAID CONTRACT, "AND NOTICES OF THE ASSIGNMENT WERE GIVEN PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, 31 U.S.C. 203. ONE OF THE TWO VOUCHERS SUBMITTED IS DRAWN IN FAVOR OF THE FIRST NATIONAL BANK IN DALLAS IN THE AMOUNT OF $6,681, REPRESENTING THE FIRST AND FINAL PAYMENT OF THE CONTRACT CONSIDERATION.

IT APPEARS THAT THE CONTRACTOR FAILED TO PAY FOR CERTAIN MATERIAL USED UNDER THE CONTRACT, AND ON DECEMBER 3, 1949, A LIEN OF $668.04 WAS FILED BY THE LOFLAND COMPANY, DALLAS, TEXAS, NOTICE OF WHICH WAS GIVEN TO THE CONTRACTOR AND TO THE PURCHASING AND CONTRACTING OFFICER AT BROOKS AIR FORCE BASE. IT APPEARS FURTHER THAT THE CONTRACTOR HAD COMPLETED SEVERAL PREVIOUS GOVERNMENT CONTRACTS FOR WORK AT HENSLEY FIELD, BUT HAD ALSO FAILED TO PAY CERTAIN CLAIMS FOR MATERIAL AND LABOR FURNISHED IN CONNECTION THEREWITH, AND ON JANUARY 11, 1950, AS A RESULT OF A PETITION FILED BY THE NATIONAL SURETY CORPORATION, SURETY ON THE PAYMENT BONDS FURNISHED UNDER SUCH CONTACTS, A TEMPORARY RESTRAINING ORDER WAS ISSUED BY THE 95TH JUDICIAL DISTRICT COURT OF DALLAS COUNTY, TEXAS, ENJOINING THE CONTRACTOR FROM RECEIVING OR DISPOSING OF THE AMOUNT OF MONEY DEPOSITED BY HIM AS SECURITY IN CONNECTION WITH THE INSTANT CONTRACT. IT WAS ALLEGED IN SAID PETITION THAT CLAIMS FOR LABOR AND MATERIALS FURNISHED UNDER THE EARLIER CONTRACTS TOTALLING APPROXIMATELY $6,000 HAD NOT BEEN PAID; THAT THE CONTRACTOR WAS UNABLE TO MAKE THE BOND REQUIRED UNDER THE INSTANT CONTRACT, BUT ARRANGED WITH THE CONTRACTING OFFICER TO POST A CERTIFIED CHECK AS SECURITY FOR PERFORMANCE OF THE CONTRACT; AND THAT THE MONEY SO POSTED BY HIM AS SECURITY REPRESENTED A PART OF THE PROCEEDS OF THE EARLIER CONTRACTS, BY REASON OF WHICH A LIEN ATTACHED TO SUCH MONEY IN FAVOR OF SURETY COMPANY AND THE UNPAID LABORERS AND MATERIALMEN UNDER THE EARLIER CONTRACTS. THE PETITION FURTHER REQUESTED THE APPOINTMENT OF A RECEIVER FOR THE CONTRACTOR TO COLLECT THE DEPOSIT, AND BY ORDER DATED FEBRUARY 11, 1950, ONE BARNEY HEMPHILL WAS APPOINTED BY THE COURT, WITH AUTHORITY TO COLLECT FROM THE FIRST NATION BANK IN DALLAS ALL OR ANY PART OF THE PROCEEDS OF THE INSTANT CONTRACT, AND TO COLLECT FROM THE UNITED STATES ALL OR ANY PART OF THE TWO CASH DEPOSITS OF $3,340.50 MADE BY THE CONTRACTOR IN LIEU OF FURNISHING PERFORMANCE AND PAYMENT BONDS THEREUNDER, AND TO EXECUTE ON BEHALF OF THE CONTRACTOR ANY AND ALL RELEASE AND ACQUITTANCE REQUIRED BY THE BANK AND THE UNITED STATES IN CONNECTION THEREUNDER, AND TO EXECUTE ON BEHALF OF THE CONTRACTOR ANY AND ALL RELEASES AND ACQUITTANCE REQUIRED BY THE BANK AND THE UNITED STATES IN CONNECTION THEREWITH. ON FEBRUARY 11, 1950, THE CONTRACTOR ADDRESSED A LETTER TO THE CONTRACTING OFFICER WHEREBY HE DIRECTED THAT THE TWO CASH DEPOSITS INVOLVED BE PAID TO BARNEY HEMPHILL, AS RECEIVER, AND AGREED TO HOLD THE UNITED STATES HARMLESS FOR SUCH PAYMENT.

IN YOUR LETTER OF MARCH 22, 1950, YOU STATE THAT THE LAWYER FOR THE LOFLAND COMPANY HAS AUTHORIZED THE CONTRACTING OFFICER TO RELEASE ITS LIEN, INASMUCH AS AN AGREEMENT HAS BEEN MADE WITH MR. BARNEY HEMPHILL, RECEIVER FOR THE CONTRACTOR. HOWEVER, NO EVIDENCE HAS BEEN SUBMITTED TO SHOW THE LEGAL AUTHORITY OF THE ATTORNEY INVOLVED TO ACT IN BEHALF OF THE LOFLAND COMPANY IN THE MATTER. YOU ALSO, STATE THAT A PAYMENT BOND HAS BEEN EXECUTED BY THE NATIONAL SURETY CORPORATION AS A SUBSTITUTE FOR THE $3,340.50 IN CASH DEPOSITED BY THE CONTRACTOR IN LIEU OF A PAYMENT BOND. A COPY OF SAID SUBSTITUTE PAYMENT BOND, EXECUTED ON MARCH 13, 1950 IN THE PENAL AMOUNT OF $3,340.50, WAS TRANSMITTED WITH YOUR LETTER, AND STATES, IN PART, AS FOLLOWS:

"*** WHEREAS THE PRINCIPAL ENTERED INTO A CERTAIN CONTRACT WITH THE GOVERNMENT, DATED 27 JUNE, 1949 ***.

"AND IN CONNECTION THEREWITH DEPOSITED WITH THE FINANCE OFFICER, BROOKS AIR FORCE BASE, TEXAS, THE SUM OF $3,340.50 IN LIEU OF THE PAYMENT BOND, AS REQUIRED BY TITLE 40, SECTION 270A OF UNITED STATES CODE.

"WHEREAS, IT IS NOW DESIRED TO SUBSTITUTE FOR SUCH DEPOSIT THIS BOND, SECURING PAYMENT OF ALL CLAIMS FOR LABOR AND MATERIAL EXACTLY AS INTENDED BY SAID STATUTE, CREATING THE SAME RIGHTS IN THE SAME PERSONS, AND GIVING THEM THE SAME REMEDIES WITH THE SAME LIMITATIONS AS IF THIS BOND HAD BEEN EXECUTED CONTEMPORANEOUSLY WITH SAID CONTRACT."

IT IS NOTED THAT THE NAME OF THE SURETY COMPANY DOES NOT APPEAR THE BODY OF SAID COPY OF THE BOND, BUT IT IS ASSUMED THAT IT DOES ON THE ORIGINAL THEREOF.

YOU STATE FURTHER IN YOUR LETTER OF MARCH 22, 1950, THAT INASMUCH AS ALL WORK UNDER THE CONTRACT HAS BEEN COMPLETED AND ACCEPTED, RELEASE OF THE ENTIRE CASH DEPOSIT TO THE RECEIVER APPEARS TO BE IN ORDER, AND THE SECOND OF THE TWO VOUCHERS SUBMITTED IS DRAWN IN FAVOR OF MR. BARNEY HEMPHILL, RECEIVER FOR M. C. HORTON, FOR REFUND OF THE $6,681 DEPOSITED IN LIEU OF PAYMENT AND PERFORMANCE BONDS UNDER CONTRACT NO. AF 41(157) 31.

WITH RESPECT TO THE VOUCHER DRAWN IN FAVOR OF THE FIRST NATIONAL BANK IN DALLAS, AS ASSIGNEE OF M.C. HORTON & COMPANY, NO REASON APPEARS WHY PAYMENT THEREON WOULD NOT OPERATE AS A GOOD ACQUITTANCE OF THE GOVERNMENT'S OBLIGATION UNDER THE CONTRACT. UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234, 243. ACCORDINGLY, PAYMENT ON SAID VOUCHER IS AUTHORIZED, IF OTHERWISE CORRECT.

NOR DOES THERE APPEAR TO BE ANY REASON WHY PAYMENT TO THE RECEIVER OF THE AMOUNT OF $3,340.50 DEPOSITED BY THE CONTRACTOR IN LIEU OF A PERFORMANCE BOND SHOULD NOT DISCHARGE THE GOVERNMENT'S LIABILITY IN CONNECTION THEREWITH.

WITH RESPECT TO THE DEPOSIT OF 4$3,340.50 MADE BY THE CONTRACTOR IN LIEU OF A PAYMENT BOND, A SOMEWHAT DIFFERENT QUESTION ARISES. THE MILLER ACT, 49 STAT. 793, 40 U.S.C. 270A, ET SEQ., PROVIDES, IN PART, AS FOLLOWS:

"*** BEFORE ANY CONTRACT, EXCEEDING $2,000 IN AMOUNT, FOR THE CONSTRUCTION, ALTERATION, OR REPAIR OF ANY PUBLIC BUILDING OR PUBLIC WORK OF THE UNITED STATES IS AWARDED TO ANY PERSON, SUCH PERSON SHALL FURNISH TO THE UNITED STATES THE FOLLOWING BONDS ***:

"(1) A PERFORMANCE BEND WITH A SURETY OR SURETIES SATISFACTORY TO THE OFFICER AWARDING SUCH CONTRACT, AND IN SUCH AMOUNT AS HE SHALL DEEM ADEQUATE, FOR THE PROTECTION OF THE UNITED STATES.

"(2) A PAYMENT BOND WITH A SURETY OR SURETIES SATISFACTORY TO SUCH OFFICER FOR THE PROTECTION OF ALL PERSONS SUPPLYING LABOR AND MATERIAL IN THE PROSECUTION OF WORK PROVIDED FOR IN SAID CONTRACT FOR THE USE OF EACH SUCH PERSON. ***

"SEC. 2. (A) EVERY PERSON WHO HAS FURNISHED LABOR OR MATERIAL IN THE PROSECUTION OF THE WORK PROVIDED FOR IN SUCH CONTRACT, IN RESPECT OF WHICH A PAYMENT BOND IS FURNISHED UNDER THIS ACT AND WHO HAS NOT BEEN PAID IN FULL THEREFOR *** SHALL HAVE THE RIGHT TO SUE ON SUCH PAYMENT BOND FOR THE AMOUNT, OR THE BALANCE THEREOF, UNPAID AT THE TIME OF INSTITUTION OF SUCH SUIT ***."

IN VIEW OF THE STATEMENT IN YOUR LETTER OF MARCH 22, 1950, THAT THE CONTRACT IS SECURED BY A CASH DEPOSIT OF $6,681, IT IS ASSUMED THAT THE CONTRACTOR DID NOT EXECUTE EITHER A PERFORMANCE OR PAYMENT BOND, BUT MERELY DEPOSITED CASH. IN THIS CONNECTION, PARAGRAPH 10-202 OF THE ARMED SERVICES PROCUREMENT REGULATIONS PROVIDES, IN PART, AS FOLLOWS:

"ANY ONE OR MORE OF THE FOLLOWING TYPES OF SECURITIES LISTED BELOW MAY BE DEPOSITED BY THE CONTRACTOR IN LIEU OF FURNISHING CORPORATE OR INDIVIDUAL SURETIES ON BONDS. ANY SUCH SECURITY ACCEPTED BY THE CONTRACTING OFFICER SHALL BE PROMPTLY TURNED OVER TO THE DISBURSING OFFICER CONCERNED, AND SUCH SECURITY OR ITS EQUIVALENT SHALL BE RETURNED TO THE CONTRACTOR WHEN THE OBLIGATION OF THE BOND HAS BY ITS TERMS CEASED."

THE REGULATION THEN MENTIONS UNITED STATES BONDS OR NOTES, CERTIFIED OR CASHIER'S CHECKS, BANK DRAFTS, MONEY ORDERS, OR CURRENCY AS ACCEPTABLE SECURITY. IT MAY BE NOTED THAT THE ABOVE-QUOTED REGULATION PROVIDES FOR THE DEPOSIT OF SUCH SECURITY "IN LIEU OF FURNISHING CORPORATE OR INDIVIDUAL SURETIES ON BONDS," AND DOES NOT PURPORT TO DISPENSE WITH THE NECESSITY OF FURNISHING THE BONDS THEMSELVES. IN THE CASE OF PAYMENT BONDS, WHICH ARE REQUIRED FOR THE PROTECTION OF LABORERS AND MATERIALMEN RATHER THAN FOR THE PROTECTION OF LABORERS AND MATERIALMEN RATHER THAN FOR THE PROTECTION OF THE GOVERNMENT, IN VIEW OF THE PROVISION OF THE STATUTE GIVING LABORERS AND MATERIALMEN THE RIGHT TO SUE "ON SUCH PAYMENT BOND," IT WOULD APPEAR THAT THE CONTRACTOR SHOULD BE REQUIRED TO EXECUTE THE PRESCRIBED FORM OF PAYMENT BOND, U.S. STANDARD FORM NO. 25-A, AS PRINCIPAL, EVEN IN CASES WHERE CASH OR OTHER ACCEPTABLE SECURITY IS DEPOSITED IN LIEU OF FURNISHING A CORPORATE OR OTHER SURETY.

FURTHERMORE, IN VIEW OF THE FACT THAT SUIT UPON PAYMENT BOND MAY BE INSTITUTED BY UNPAID LABORERS AND MATERIALMEN AT ANY TIME WITHIN ONE YEAR AFTER THE DATE OF FINAL SETTLEMENT OF THE CONTRACT, IT SEEMS CLEAR THAT ANY SECURITY DEPOSITED IN LIEU OF OTHER SURETY ON A PAYMENT BOND ORDINARILY WOULD BE REQUIRED TO BE RETAINED FOR THAT PERIOD OF TIME BEFORE BEING RETURNED TO THE CONTRACTOR.

IN THE PRESENT CASE, A PAYMENT BOND WITH THE NATIONAL SURETY CORPORATION AS SURETY HAS BEEN EXECUTED AND IS PROPOSED TO BE SUBSTITUTED FOR THE PREVIOUS CASH DEPOSIT. IT WOULD APPEAR THAT THE SUBSTITUTION OF SUCH BOND FOR THE CASH DEPOSIT OF $3,340.50 AFFORDS ADEQUATE PROTECTION TO PERSONS WHO HAVE FURNISHED LABOR AND MATERIAL IN THE PROSECUTION OF THE CONTRACT WORK. HOWEVER, IN VIEW OF THE FACT THAT A LIEN WAS FILED BY THE LOFLAND COMPANY PRIOR TO THE TIME SUCH BOND WAS EXECUTED, THERE SHOULD BE SECURED FROM THAT COMPANY, AND FROM ANY OTHER PERSONS WHO MAY HAVE FILED LIENS PRIOR TO THE EXECUTION OF THE BOND, EITHER A RELEASE OF LIENS OR A CONSENT TO THE SUBSTITUTION OF THE SURETY BOND FOR THE CASH DEPOSIT. IF SUCH RELEASE OR CONSENT BE EXECUTED IN BEHALF OF THE LIENER BY AN ATTORNEY, THERE SHOULD ALSO BE FURNISHED EVIDENCE OF THE ATTORNEY'S AUTHORITY IN THE PROMISES.

IF THIS BE DONE, AND PROVIDED NO SUIT HAS BEEN INSTITUTED TO ENFORCE A LIEN AGAINST THE CASH DEPOSITED IN LIEU OF A PAYMENT BOND, YOU ARE ADVISED THAT REFUND OF THE ENTIRE CASH DEPOSIT OF $6,681 TO THE RECEIVER, AS PROPOSED BY THE VOUCHER TRANSMITTED WITH YOUR LETTER, WOULD APPEAR TO EXONERATE THE UNITED STATES OF ANY LIABILITY IN CONNECTION THEREWITH, AND PAYMENT ON THE VOUCHER WOULD BE AUTHORIZED.

THE VOUCHERS AND OTHER PAPERS TRANSMITTED WITH YOUR LETTER OF MARCH 22, 1950, ARE RETURNED HEREWITH.