B-125205, JAN. 9, 1956

B-125205, JAN. 9, 1956

TO LEHRICH AND LEHRICH, ATTORNEYS AT LAW:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 1, 1955, PROTESTING THE ACTION TAKEN BY THE CLAIMS DIVISION OF OUR OFFICE IN CERTIFYING FOR PAYMENT THE SUM OF $13,250, ON BUREAU VOUCHER NO. 15684, IN FAVOR OF THE COASTAL COMMERCIAL CORPORATION, AS ASSIGNEE FOR CARTERET WORK UNIFORMS, 1501 BROADWAY, NEW YORK 36, NEW YORK, AND WITHHOLDING THE BALANCE OF $9,191.86, OTHERWISE DUE UNDER DECISION OF AUGUST 20, 1954, RENDERED BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS. IT IS YOUR CONTENTION THAT IN VIEW OF THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C.A. 203, NO PART OF THE AMOUNT AWARDED BY THAT BOARD MAY BE WITHHELD BY THE GOVERNMENT, AND THEREFORE THE ENTIRE AMOUNT SHOULD BE PAID TO THE ASSIGNEE OF THE CONTRACTOR IN ACCORDANCE WITH THE ASSIGNMENT OF RECORD IN THE CASE. YOU STATE FURTHER THAT YOUR INTEREST IN THE MATTER GENERATES FROM THE FACT THAT YOU REPRESENTED THE CONTRACTOR, AND LATER THE RECEIVER FOR THE CONTRACTOR, IN THE PROSECUTION OF THE CLAIM INVOLVED, AND THAT THE LEGAL FEES EARNED BY YOU IN THAT ACTION REMAIN UNPAID.

SETTLEMENT OF THE SUBJECT CLAIM FOR $22,441.86, WHICH YOU REFER TO AS BEING CONTEMPLATED BY THIS OFFICE, HAS BEEN ACCOMPLISHED IN THE MANNER STATED ABOVE, AND REVIEW OF THAT ACTION MAY NOT BE TAKEN AT THE REQUEST OF ANYONE OTHER THAN THE CLAIMANT. HOWEVER, YOU MAY BE ADVISED THAT SUCH ACTION WAS TAKEN PURSUANT TO THE DUTIES IMPOSED BY STATUTORY LAW UPON THE GENERAL ACCOUNTING OFFICE (SEE 31 U.S.C.A. ET SEQ.), AND IN ACCORDANCE WITH PREVIOUS DECISIONS CONCERNING THE ASSIGNMENT OF CLAIMS ACT, SUPRA. IN THE ABSENCE OF AN OBLIGATION OF THE CONTRACTOR TO THE UNITED STATES, ALL PAYMENTS DUE UNDER A PROPERLY EXECUTED ASSIGNMENT ORDINARILY WOULD BE PAID TO THE ASSIGNEE IF THE REQUIREMENTS OF THE ACT ARE MET. HOWEVER, WHERE, AS HERE, THE CONTRACTOR-ASSIGNOR IS INDEBTED TO THE GOVERNMENT, THE UNITED STATES IS NO LONGER A MERE STAKEHOLDER, BUT RATHER IS BOTH A DEBTOR AND CREDITOR OF THE CONTRACTOR. IT IS RECOGNIZED THAT THE ASSIGNMENT OF CLAIMS ACT, AS AMENDED, APPEARS TO HAVE BEEN ENACTED FOR THE BENEFIT OF ASSIGNEES, BUT IT HAS BEEN HELD THAT SUCH ACT MAY NOT BE USED AS A VEHICLE TO DEFEAT THE GOVERNMENT'S RIGHT TO DEMAND AN ACCOUNTING FROM THE ASSIGNOR. IN DECISION OF AUGUST 25, 1955, 35 COMP. GEN. 104, IT WAS HELD, IN PERTINENT PART, AS FOLLOWS:

"UNDER CERTAIN CIRCUMSTANCES, AND WHERE THE DEBTOR IS MERELY A STAKEHOLDER, IT MAY BE TRUE THAT HE HAS NO CONCERN WITH THE STATE OF THE ACCOUNT BETWEEN ASSIGNOR AND ASSIGNEE. IN NONE OF THE AUTHORITIES CITED IN SUPPORT OF THE BANK'S POSITION ON THIS POINT, HOWEVER, WAS THERE INVOLVED A SITUATION WHERE THE ASSIGNOR WAS INDEBTED TO THE PRINCIPAL DEBTOR. IT MAY BE NOTED, TOO, THAT IN THE COCONUT GROVE CASE THE ASSIGNEE BANK CLAIMED ONLY THE AMOUNT OWED TO IT, AND DEPOSITED AN EXCESS RECEIVED BY IT INTO COURT. AS STATED BY THE BANK IN THE PRESENT CASE, THERE IS NO DOUBT THAT AN ASSIGNEE WHO TAKES AN ASSIGNMENT AS SECURITY FOR LOANS TO THE ASSIGNOR MUST ACCOUNT TO THE ASSIGNOR AS A CONSTRUCTIVE TRUSTEE FOR ALL PROCEEDS COLLECTED IN EXCESS OF THE ASSIGNOR'S INDEBTEDNESS. SEE, FOR EXAMPLE, THE LEAVENWORTH STATE BANK CASE, CITED ABOVE. SEE, ALSO, WILLISTON ON CONTRACTS, REV.ED., SECTION 441. BUT, IF THE BENEFICIARY OF A TRUST IS INDEBTED IN A GREATER AMOUNT TO THE SAME PERSON FROM WHOM MONEY IS DUE TO THE TRUSTEE, THE TRUSTEE MAY NOT COLLECT MORE THAN THE DIFFERENCE BETWEEN THE TWO DEBTS. AS WAS STATED BY THE SUPREME COURT IN THE CASE OF STONE V. WHITE, 301 U.S. 532, 537:

" "IN SUCH CASES EQUITY DOES NOT COUNTENANCE THE IDLE CEREMONY OF ALLOWING RECOVERY BY THE TRUSTEE ONLY TO COMPEL HIM TO ACCOUNT TO THE BENEFICIARY WHO WOULD THEN HAVE TO PAY THE PROCEEDS TO THE ORIGINAL DEFENDANT. TO AVOID THIS CIRCUITY OF ACTION A COURT OF EQUITY TAKES COGNIZANCE OF THE IDENTITY IN INTEREST OF TRUSTEE AND CESTUI QUE TRUST.'"

CF. RHODE ISLAND DISCOUNT CO. V. UNITED STATES, 118 C.CLS. 262, 287-288. THE FOREGOING PRINCIPLE AS APPLIED TO THE FACTS OF THE PRESENT CASE MEANS SIMPLY THAT IF THE AMOUNT EVENTUALLY DETERMINED TO BE DUE UNDER CONTRACT NOY 27415 IS IN EXCESS OF THE AMOUNT OWED BY THE CONTRACTOR TO THE ASSIGNEE BANK, SUCH EXCESS MAY BE USED BY THE GOVERNMENT TO SATISFY THE CONTRACTOR'S TAX INDEBTEDNESS. THE "NO SET OFF" PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940 ARE FOR THE PROTECTION OF THE ASSIGNEE AND CANNOT, IN OUR OPINION, BE USED TO IMMUNIZE CONTRACT PROCEEDS AGAINST COLLECTION OF THE CONTRACTOR'S JUST DEBTS TO THE GOVERNMENT THROUGH THE DEVICE OF AN ASSIGNMENT MERELY FOR COLLECTION.'

IN VIEW OF THE FOREGOING THE APPLICATION OF $9,191.86, IN PARTIAL LIQUIDATION OF THE CONTRACTOR'S INDEBTEDNESS TO THE UNITED STATES APPEARS PROPER AND THEREFORE SUCH SETTLEMENT WILL NOT BE DISTURBED.