B-160641, APR. 28, 1967

B-160641, APR. 28, 1967

TO UNITED PACIFIC INSURANCE COMPANY:

REFERENCE IS MADE TO YOUR LETTER DATED MARCH 30, 1967, ADVISING THAT YOU CANNOT ACCEPT OUR VIEWS AS EXPRESSED IN OUR LETTER TO YOU DATED MARCH 8, 1967, B-160641.

IN OUR EARLIER LETTER WE STATED THAT:

"* * * WE DO NOT DOUBT THAT ANY CREDITS OR SUMS DUE THE TIMBER ACCESS INDUSTRIES COMPANY, UNDER THE DEFAULTED CONTRACTS IN THE HANDS OF THE GOVERNMENT, WILL BE APPLIED FIRST TO THE DEBTS OF THE COMPANY UNDER THESE CONTRACTS. HOWEVER, WE ARE AWARE OF NO AUTHORITY THAT WOULD REQUIRE THE GOVERNMENT TO WITHHOLD SUMS DUE AND PAYABLE TO THE CONTRACTOR ON UNDEFAULTED CONTRACTS PRIOR TO COMPLETION OF THE CONTRACT.

"IN THIS LATTER CONNECTION, IT MAY BE OBSERVED THAT IF THE GOVERNMENT SHOULD WITHHOLD AMOUNTS DUE ON UNDEFAULTED CONTRACTS DURING PROGRESS OF THE CONTRACTS, THE GOVERNMENT MAY BE CONSIDERED AS HAVING BREACHED THE CONTRACTS AND BE SUBJECT TO LIABILITY FOR DAMAGES.

"* * * IT IS OUR OPINION THAT THE GOVERNMENT IS UNDER NO OBLIGATION TO OFFSET MONIES DUE THE CONTRACTOR ON UNRELATED CONTRACTS FOR THE PURPOSE OF SAVING THE SURETY HARMLESS ON DEFAULTED CONTRACTS. * * *.'

YOU CITE THE CASE OF UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234, AS HOLDING THAT THE GOVERNMENT HAS THE RIGHT TO ADJUST AND OFFSET ALL ACCOUNTS OF TIMBER ACCESS INDUSTRIES CO. AND THE GOVERNMENT, DESPITE THE FACT THAT THEY MAY REFER TO UNRELATED CONTRACTS. THIS PRINCIPLE IS NOT QUESTIONED, AND THE RIGHT HAS BEEN EXERCISED MANY TIMES. HOWEVER, WE ARE AWARE OF NO AUTHORITY WHICH WOULD REQUIRE THE GOVERNMENT TO EXERCISE THE RIGHT FOR THE BENEFIT OF A SURETY.

IN THE MUNSEY CASE, IT WAS HELD, INTER ALIA, QUOTING FROM THE HEADNOTES:

"NOTWITHSTANDING CLAIMS OF A SURETY ON A STATUTORY PAYMENT BOND * * * FOR REIMBURSEMENT FOR SUMS PAID TO LABORERS AND MATERIALMEN, THE GOVERNMENT MAY SET OFF, AGAINST UNAPPROPRIATED PERCENTAGES OF PROGRESS PAYMENTS WITHHELD BY IT AND DUE TO THE CONTRACTOR ON THE CONSTRUCTION CONTRACT, A DEBT OWED TO IT BY THE CONTRACTOR AS A RESULT OF A SEPARATE AND INDEPENDENT TRANSACTION.' AND

"THE RIGHT OF THE GOVERNMENT TO RETAINED PERCENTAGES OF PROGRESS PAYMENTS ON A CONSTRUCTION CONTRACT DOES NOT DEVOLVE ON A SURETY WHO HAS PAID LABORERS AND MATERIALMEN, SO AS TO PREVENT THE GOVERNMENT FROM APPLYING THE UNAPPROPRIATED SUM TO THE SATISFACTION OF ITS OWN CLAIM GROWING OUT OF A SEPARATE AND INDEPENDENT TRANSACTION.'

WE HAVE ALREADY INDICATED TO YOU THAT SUMS DUE A CONTRACTOR WITHHELD BY THE GOVERNMENT WOULD UNDOUBTEDLY BE USED BY THE DISBURSING OFFICER IN OFFSET AGAINST DEBTS OF THE CONTRACTOR ARISING OUT OF THE SPECIFIC CONTRACT, AND ANY REMAINING BALANCE WOULD BE USED IN OFFSET AGAINST ANY OTHER INDEBTEDNESS OF THE CONTRACTOR, SUCH AS TAXES, ETC. THE MUNSEY TRUST CASE IS AMPLE PRECEDENT FOR THIS ACTION, BUT IT IS NO AUTHORITY FOR THE ACTION YOU REQUEST.

THE CONCLUSIONS REACHED IN THE MANY CASES CITED IN THE FIFTH PARAGRAPH OF YOUR CURRENT LETTER ARE CONSISTENT WITH THE CONCLUSIONS OF THE MUNSEY TRUST CASE AND WITH OUR VIEWS STATED IN OUR EARLIER LETTER. THE CASES CITED FOR THE MOST PART REQUIRE THE CREDITOR TO APPLY COLLATERAL HELD TO REDUCTION OF THE DEBT BEFORE MAKING DEMAND ON THE SURETY. IN THE PRESENT MATTER, WE HAVE ALREADY INDICATED THAT THE DISBURSING OFFICER WOULD UNDOUBTEDLY FIRST OFFSET SUMS HELD UNDER ONE CONTRACT TO DEBTS ARISING UNDER THAT CONTRACT, AND THE BALANCE, IF ANY, TO DEBTS OF THE CONTRACTOR NOT RELATED TO THAT CONTRACT. THE CASES CITED ARE INAPPLICABLE TO AND DISTINGUISHABLE FROM THE PRESENT MATTER.

WE MUST ALSO ADVISE THAT THE ADMINISTRATION OF EXECUTORY CONTRACTS, PAYMENT OF CLAIMS AND COLLECTION OF DEBTS, ARE PRIMARILY AND INITIALLY THE RESPONSIBILITY OF THE ADMINISTRATIVE OFFICE CONCERNED. IT IS ONLY AFTER A FINAL OR DEFINITIVE ACTION HAS BEEN TAKEN BY THE ADMINISTRATIVE OFFICE, SUCH AS DENIAL OF A CLAIM, THAT OUR OFFICE WILL UNDERTAKE TO SETTLE SUCH CLAIM, UNLESS, OF COURSE, THE DISBURSING OFFICER, OR CERTIFYING OFFICER, REQUESTS AN ADVANCE DECISION AS TO THE PROPRIETY OF PAYMENT OF A VOUCHER PRESENTED TO HIM, OR REFERS THE INDEBTEDNESS HERE AS AN UNCOLLECTIBLE ITEM.

IT IS OUR SUGGESTION THAT YOU COMMUNICATE WITH THE ADMINISTRATIVE OFFICES MENTIONED IN OUR LETTER OF MARCH 8, 1967, AND ATTEMPT TO SETTLE THE MATTER THERE. IF FINAL ACTION BY THOSE OFFICES IS NOT SATISFACTORY TO YOU, YOU MAY PRESENT YOUR CLAIM TO OUR OFFICE FOR SETTLEMENT.