B-153171, OCT. 8, 1964

B-153171, OCT. 8, 1964

TO SURREY, KARASIK, GOULD AND GREENE:

WE HAVE YOUR LETTERS OF APRIL 10 AND JUNE 4, 1964, REQUESTING RECONSIDERATION OF OUR CLAIMS DIVISION SETTLEMENT, DATED MARCH 26, 1964, WHICH DENIED THE CLAIM OF MERCHANTS FINANCE CORPORATION FOR MONEY DUE UNDER CONTRACT NO. DA-33-181-ENG-1953 WITH THE DEPARTMENT OF THE ARMY AND ASSIGNED BY THE BANKRUPT CONTRACTOR, NAPOLEON J. HUDON AND SON, INC., TO MERCHANTS PRIOR TO EXECUTION OF THE SUBJECT CONTRACT. THE REASON GIVEN IN OUR SETTLEMENT TO SUPPORT THE DENIAL OF YOUR CLAIM WAS THAT UNDER THE TERMS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, IT IS NOT PERMISSIBLE TO MAKE AN ASSIGNMENT WITH RESPECT TO A CONTRACT NOT IN EXISTENCE AT THE TIME OF THE ASSIGNMENT.

APPLICABLE STATE LAW APPEARS TO VALIDATE THE PRIOR ASSIGNMENT OF AFTER- ACQUIRED CONTRACT RIGHTS, ALTHOUGH IT ALSO PREVENTS THE ATTACHMENT OF SUCH RIGHTS UNTIL THE CONTRACT HAS BEEN MADE. SEE ANNOTATED LAWS OF MASSACHUSETTS, CHAPTER 106, SECTIONS 9-108 AND 9 204. FURTHERMORE, IT APPEARS THAT ALTHOUGH CERTAIN FEDERAL TAX LIENS WERE PROPERLY RECORDED PRIOR TO THE ASSIGNEE'S NOTICE OF ASSIGNMENT TO GOVERNMENT OFFICIALS, AS REQUIRED BY THE ACT, THE "NO SET-OFF" PROVISIONS OF SUCH ACT, TOGETHER WITH THE PROPER INCLUSION OF A NO SET OFF CLAUSE IN THE SUBJECT CONTRACT, NULLIFIES THE PRIORITY OF THE LIENS WHICH WOULD OTHERWISE OBTAIN IN ACCORDANCE WITH SECTION 6321 OF THE INTERNAL REVENUE CODE OF 1954. SEE 37 COMP. GEN. 318.

HOWEVER, THE CONTRACTOR-ASSIGNOR IS INVOLVED IN A PENDING BANKRUPTCY PROCEEDING IN THE DISTRICT COURT OF THE DISTRICT OF MASSACHUSETTS, AND QUESTIONS ARE PRESENTED AS TO POSSIBLE INTERESTS OF THE TRUSTEEIN BANKRUPTCY IN THE MONEY DUE UNDER THE SUBJECT CONTRACT. THE ATTORNEY FOR THE TRUSTEE HAS CLAIMED ENTITLEMENT TO THE FUND, AND WE ARE INFORMALLY ADVISED BY THE INTERNAL REVENUE SERVICE THAT HE HAS PROPOSED TO THE U.S. ATTORNEY IN BOSTON, MASSACHUSETTS, THAT THESE FUNDS BE RELEASED TO THE TRUSTEE UNDER A STIPULATION RESERVING THE RESPECTIVE RIGHTS AND PRIORITIES OF THE CLAIMANTS THERETO. ON THE OTHER HAND, WE UNDERSTAND THAT YOUR CLIENT HAS PROPOSED A SETTLEMENT COVERING MONEY ASSIGNED UNDER SEVERAL CONTRACTS WITH THE BANKRUPT WHICH WOULD RESULT IN MERCHANTS RECEIVING THE PARTICULAR FUNDS HERE UNDER CONSIDERATION.

YOU CONTEND THAT MERCHANTS' CLAIM TO THE FUNDS IS SUPERIOR TO THE TRUSTEE -S, AND HAVE SUBMITTED BRIEFS TO SUPPORT THIS POSITION. HOWEVER, THE DETERMINATION OF THIS ISSUE APPEARS TO BE MORE PROPERLY WITHIN THE JURISDICTION OF THE BANKRUPTCY COURT RATHER THAN OF OUR OFFICE. B-144031, DATED MARCH 16, 1961. IN REPLY TO OUR INQUIRY AS TO HIS POSITION WITH RESPECT TO THE CLAIM OF YOUR CLIENT, WE HAVE A LETTER DATED SEPTEMBER 11, 1964, FROM THE ATTORNEY FOR THE TRUSTEE, WHICH STATES:

"IN REPLY TO YOUR LETTER OF SEPTEMBER 3, 1964, AFTER A STUDY OF THE LAW IN THIS CASE, IT IS OUR OPINION THAT THE TRUSTEE IN BANKRUPTCY HAS SUPERIOR RIGHTS TO THE ASSIGNEE AND WE INTEND TO SUBMIT THIS MATTER TO THE REFEREE FOR DETERMINATION IN THE FORM OF A PETITION TO ESTABLISH THE ORDER OF PRIORITIES IN AND TO THE PROCEEDS OF THE SUBJECT CONTRACT. A COPY OF THE PETITION WILL BE FORWARDED TO YOU IN DUE COURSE AND WE WILL ADVISE YOU OF THE DETERMINATION MADE BY THE REFEREE IN BANKRUPTCY.'

IN VIEW OF THE CONFLICTING CLAIMS AND OF THE BANKRUPTCY COURT'S JURISDICTION IN THE MATTER, WE FEEL THAT WE SHOULD WITHHOLD ACTION ON YOUR CLAIM PENDING AN APPROPRIATE RESOLUTION OF THE MATTER, EITHER BY JUDICIAL ACTION OR BY AGREEMENT OF THE PARTIES. WE ARE SO ADVISING THE TRUSTEE, THE INTERNAL REVENUE SERVICE, AND THE DEPARTMENT OF JUSTICE, AND REQUESTING THE LATTER AGENCY TO INSTRUCT THE UNITED STATES ATTORNEY AT BOSTON TO TAKE SUCH ACTION AS MAY BE CONSIDERED PROPER IN THE INTEREST OF THE UNITED STATES.