B-128299, JUN. 26, 1958

B-128299, JUN. 26, 1958

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED MARCH 13, 1958, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY (LOGISTICS), REQUESTING A DECISION AS TO WHETHER THE SUM OF $7,523.14, WHICH IS DUE THE PULLMAN STANDARD CAR MANUFACTURING COMPANY UNDER CONTRACT NO. DA-11-022-CRD 78, AND WHICH THEY, IN TURN, WILL PAY TO THEIR SUBCONTRACTOR, RACINE SCREW COMPANY, MAY BE SET OFF AGAINST THE AMOUNT OWED THE GOVERNMENT BY THE SUBCONTRACTOR UNDER CONTRACT NO. DA- 36-038-ORD-962.

IN THE LETTER OF MARCH 13, 1958, IT IS STATED AS FOLLOWS:

"A. ON 27 JUNE 1951, THE GOVERNMENT ENTERED INTO CONTRACT NO. DA 11-022- ORD-78 WITH PULLMAN STANDARD CAR MANUFACTURING COMPANY WHO SUBCONTRACTED A PORTION OF THE WORK TO RACINE SCREW COMPANY. AS A RESULT OF AN ENGINEERING CHANGE ORDER, CERTAIN "WORK IN PROCESS, IN THE PLANT OF RACINE SCREW COMPANY WAS OBSOLETED. THE GOVERNMENT REFUSED PAYMENT FOR THIS MATERIAL AND PULLMAN PROCESSED AN APPEAL TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS ON BEHALF OF RACINE SCREW COMPANY. SUBSEQUENTLY, UPON DEVELOPMENT OF ADDITIONAL FACTS, IT WAS DETERMINED THAT THE GOVERNMENT'S POSITION ON THE APPEAL COULD NOT BE SUSTAINED; THE APPEAL WAS SUSPENDED AND RETURNED TO THE CONTRACTING OFFICER. THE DISPUTE WAS RESOLVED, AND THE AMOUNT OF $8,100.40 LESS $577.26 (SCRAP CREDIT) OR THE NET AMOUNT OF $7,523.14 WAS DETERMINED TO BE DUE AND OWING PULLMAN. THE DEPARTMENT OF THE ARMY IS NOW READY TO PAY THIS AMOUNT TO PULLMAN WHO, IT IS UNDERSTOOD, WILL IN TURN IMMEDIATELY PAY THIS AMOUNT OVER TO ITS SUBCONTRACTOR, RACINE SCREW COMPANY. FUNDS FOR PAYMENT OF THIS AMOUNT ARE AVAILABLE FROM THE APPROPRIATION CITED IN THE CONTRACT.

"B. ON 25 MAY 1950, RACINE SCREW COMPANY ENTERED INTO CONTRACT NO. DA-36- 038-ORD-962 WITH THE GOVERNMENT. ON 2 MAY 1951, THE CONTRACT WITH RACINE SCREW COMPANY WAS TERMINATED FOR DEFAULT, FROM WHICH TERMINATION RACINE SCREW COMPANY PROCESSED AN APPEAL. ON 17 MAY 1955, THE ARMED SERVICES BOARD OF CONTRACT APPEALS SUSTAINED THE TERMINATION FOR DEFAULT AND RETURNED THE FILE TO THE CONTRACTING OFFICER FOR COMPUTATION OF LIQUIDATED DAMAGES IN ACCORDANCE WITH THE OPINION (ASDCA NO. 2260). THE CONTRACT CONTAINED A LIQUIDATED DAMAGES CLAUSE AND SEABOARD SURETY HAD POSTED A PERFORMANCE BOND IN THE AMOUNT OF $25,000.00. THE CONTRACTING OFFICER ACCORDINGLY RECOMPUTED THE ASSESSMENT OF LIQUIDATED DAMAGES WHICH HE FOUND TO BE IN THE AMOUNT OF $29,264.98. RACINE SCREW COMPANY TOOK AN APPEAL FROM THIS DETERMINATION, AND THE BOARD SUSTAINED THE DECISION OF THE CONTRACTING OFFICER (ASBCA NO. 2945).

"C. RACINE SCREW COMPANY SUBSEQUENTLY FILED AN ACTION AGAINST THE UNITED STATES ENTITLED RACINE SCREW COMPANY V. UNITED STATES, COURT OF CLAIMS NO. 227-56, WHEREIN IT IS ALLEGED, AMONG OTHER THINGS, THAT IT WAS PREVENTED BY CERTAIN ACTS OF THE GOVERNMENT FROM PERFORMANCE OF CONTRACT NO. DA-36- 038-ORD-962 AND ASKS JUDGMENT AGAINST THE GOVERNMENT IN THE AMOUNT OF $43,029.19 PLUS COSTS AND DISBURSEMENTS AND FOR SUCH OTHER RELIEF AS THE COURT MAY DEEM JUST AND EQUITABLE.'

IN 80 C.J.S., SET-OFF AND COUNTERCLAIM SEC. 48, IT IS STATED:

"AS A GENERAL RULE, IN ORDER TO WARRANT A SET-OFF THE DEMANDS MUST BE MUTUAL AND SUBSISTING BETWEEN THE SAME PARTIES, AND FURTHERMORE MUST BE DUE IN THE SAME CAPACITY OR RIGHT, AND THERE MUST BE MUTUALITY AS TO THE QUALITY OF THE RIGHT.'

UNDER THE FACTS STATED IN THE LETTER OF MARCH 13, 1958, THERE APPEARS TO BE WHOLLY LACKING THE ELEMENT OF MUTUALITY ESSENTIAL TO THE APPLICATION OF THE REMEDY OF SETOFF. IT IS WELL SETTLED THAT TO OFFSET ONE DEBT AGAINST ANOTHER, THERE MUST BE MUTUALITY OF RIGHTS AS WELL AS OF PARTIES. DAKIN V. SAYLY, 290 U.S. 143; UNITED STATES V. BUTTERWORTH-JUDSON CORP., 267 U.S. 387; MOLINE MALLEABLE IRON CO. V. YORK IRON CO., 83 F. 66; THOMAS V. POTTER TITLE AND TRUST CO., 2 F.SUPP. 12.

THE RIGHT OF THE UNITED STATES TO MAKE SETOFF MAY NOT BE EXERCISED UNLESS THE DEBTOR HAS A PRESENT RIGHT OF ACTION TO DEMAND FROM THE UNITED STATES THE AMOUNT PROPOSED TO BE USED FOR SETOFF PURPOSES. IT APPEARS FROM THE LETTER OF MARCH 13, 1958, THAT THE LIQUIDATED DAMAGE INDEBTEDNESS HERE INVOLVED CONSTITUTES AN OBLIGATION OF THE RACINE SCREW COMPANY TO THE UNITED STATES, WHEREAS THE AMOUNT WHICH IT IS REQUESTED BE COLLECTED BY MEANS OF SETOFF CONSTITUTES AN OBLIGATION OF THE UNITED STATES TO THE PULLMAN-STANDARD CAR MANUFACTURING COMPANY AND, IN TURN, AN OBLIGATION OF THE LATTER TO ITS SUBCONTRACTOR, THE RACINE SCREW COMPANY. THERE IS NOT INVOLVED AN OBLIGATION OF THE UNITED STATES TO THE RACINE SCREW COMPANY. HENCE, IT FOLLOWS THAT ANY ACTION TAKEN TO EFFECT COLLECTION OF THE LIQUIDATED DAMAGE INDEBTEDNESS OF THE SUBCONTRACTOR--- BY WITHHOLDING MONEYS OWED BY THE UNITED STATES TO THE PRIME CONTRACTOR WHICH IN TURN WOULD BE PAID TO THE SUBCONTRACTOR--- WOULD BE OF DOUBTFUL LEGAL VALIDITY.

ACCORDINGLY, THE SUM DUE THE PULLMAN-STANDARD CAR MANUFACTURING COMPANY UNDER CONTRACT NO. DA-11-022-ORD-78 MAY NOT PROPERLY BE USED AS A SETOFF AGAINST THE AMOUNT DUE THE UNITED STATES BY THE RACINE SCREW COMPANY UNDER CONTRACT NO. DA-36-038-ORD-962.