B-155400, DEC. 3, 1964

B-155400, DEC. 3, 1964

TO VICE ADMIRAL JOSEPH M. LYLE, DIRECTOR, DEFENSE SUPPLY AGENCY:

WE HAVE CONSIDERED THE QUESTION OF THE PROPER DISPOSITION OF $101,395 OWED BY THE DEFENSE SUPPLY AGENCY TO THE SILVER REFRIGERATION MANUFACTURING CORPORATION, RAISED BY YOUR LETTER TO OUR CLAIMS DIVISION DATED JULY 21, 1964, SIGNED BY YOUR ASSISTANT COUNSEL, REFERENCE DSAH-G. THE MONEY CONSTITUTES THE SUM TOTAL OF EQUITABLE ADJUSTMENTS TO CONTRACT PRICES MADE FOR EXTRA WORK PERFORMED BY THE CONTRACTOR, WHICH ADJUSTMENTS WERE EMBODIED IN MODIFICATION 9 TO CONTRACT NO. DA 44-193-QM (MGS) 479 (O.I. T-9283-61-R), MODIFICATION 8 TO CONTRACT NO. DA 44-193-QM (MGS) 386 (O.I. T-7057-61-R), AND MODIFICATION 9 TO CONTRACT NO. DA 44-193-QM (MGS) 583 (O.I. T-10569-61 R).

THE FILE SHOWS THAT THE COMPANY WAS ADJUDICATED A BANKRUPT ON JULY 2, 1963, IN THE EASTERN DISTRICT OF NEW YORK, DOCKET 63 B 8. BY AN AGREEMENT DATED MAY 15, 1961, AND TWO OTHER AGREEMENTS DATED JULY 19, 1961, SILVER HAD ASSIGNED THE RIGHT TO ALL ACCOUNTS RECEIVABLE UNDER THESE CONTRACTS TO A FACTOR, ROSENTHAL AND ROSENTHAL, INCORPORATED. THE ASSIGNMENT WAS DULY PERFECTED UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 213, NOTICES TO THE PROCURING INSTALLATION RECEIVED ON MAY 24, AND JULY 24, 1961.

ASSIGNMENTS OF THESE VERY SAME ACCOUNTS WERE EFFECTED ON FEBRUARY 15, 1962, TO THE MASTAN COMPANY. BY LETTERS DATED FEBRUARY 19, 1962, THE MASTAN COMPANY GAVE NOTICE OF THE ASSIGNMENTS TO THE CONTRACTING OFFICER OF THE PROCURING INSTALLATION, AND FORWARDED COPIES OF RELEASES OF THE PRIOR ASSIGNMENTS DATED FEBRUARY 16, 1962, PROPERLY AUTHENTICATED AND SIGNED BY AN AUTHORIZED OFFICIAL OF ROSENTHAL AND ROSENTHAL, INCORPORATED. RECEIPT OF NOTICE OF THE ASSIGNMENTS WAS ACKNOWLEDGED BY THE CONTRACTING OFFICER AS OF FEBRUARY 21, 1962.

IN EXCHANGE FOR A LOAN OF $175,000 THE CONTRACTOR HAD EXECUTED ITS BOND TO THE SMALL BUSINESS ADMINISTRATION ON JULY 24, 1959, SECURING THE OBLIGATION WITH A CHATTEL MORTGAGE COVERING ALL OF ITS MACHINERY AND EQUIPMENT. WE ARE INFORMED THAT UPON DEFAULT OF THE OBLIGATION THE ADMINISTRATION PURCHASED THE COLLATERAL AT A FORECLOSURE SALE FOR APPROXIMATELY $110,000 AND WAS ABLE TO RESELL THE SECURITY FOR APPROXIMATELY $250,000. BY LETTER TO OUR OFFICE DATED NOVEMBER 12, 1964, SBA REDUCED THE AMOUNT OF ITS CLAIM AGAINST SILVER TO $30,620.10 FURTHER EXPRESSING THE OPINION THAT THERE WILL BE APPLIED TO THIS BALANCE CERTAIN PROCEEDS EMANATING FROM THE FORECLOSURE SALE OF A PIECE OF REAL ESTATE WHICH PROCEEDS ARE NOW ON DEPOSIT WITH THE NEW YORK SUPREME COURT.

THE QUESTION FOR DECISION IS WHETHER OR NOT THE SECOND ASSIGNMENT TO THE MASTAN COMPANY IS IN CONTRAVENTION OF THAT PORTION OF 31 U.S.C. 213, WHICH READS IN PERTINENT PART:

"3. THAT UNLESS OTHERWISE EXPRESSLY PERMITTED BY SUCH CONTRACT ANY SUCH ASSIGNMENT * * * SHALL NOT BE MADE TO MORE THAN ONE PARTY, AND SHALL NOT BE SUBJECT TO FURTHER ASSIGNMENT * * *.' DESPITE THE FACT THAT EACH OF THE CONTRACTS UNDER DISCUSSION CONTAINED A SO-CALLED "NO SET-OFF" PROVISION, IF THE SECOND ASSIGNMENT IS INVALID THE GOVERNMENT COULD LEGALLY STAND UPON ITS COMMON LAW RIGHT TO SET-OFF AGAINST THE TRUSTEE IN BANKRUPTCY, WHO WOULD THEN BE THE ONLY OTHER PARTY IN INTEREST, THE AMOUNT OF ANY CLAIMS IT MIGHT HAVE AGAINST THE BANKRUPT. SEE UNITED STATES V. MUNSEY TRUST COMPANY, 332 U.S. 234, AT PAGE 239 WHERE THE SUPREME COURT COMMENTS THAT "* * * THE GOVERNMENT HAS THE SAME RIGHT "WHICH BELONGS TO EVERY CREDITOR, TO APPLY THE UNAPPROPRIATED MONEYS OF HIS DEBTOR, IN HIS HANDS, IN EXTINGUISHMENT OF THE DEBTS DUE TO HIM.'"

OUR ATTENTION IS DIRECTED TO THE OPINION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF OKLAHOMA IN DURANT NATIONAL BANK V. UNITED STATES, 168 F.SUPP. 203 (1958), WHERE A SECOND ASSIGNMENT WAS INVALIDATED. CF. 39 COMP. GEN. 533. WE BELIEVE THAT THE FACTS OF THE DURANT CASE ARE DISTINGUISHABLE FROM BOTH OUR DECISION IN 39 COMP. GEN. 533 AND FROM THE CONTROVERSY HERE PRESENTED. THE COURT IN DURANT NOTED, AT THE TOP OF PAGE 204, THAT THE CONTRACT DID NOT, BY ITS TERMS PERMIT MORE THAN ONE ASSIGNMENT TO BE MADE. EACH OF THE CONTRACTS INVOLVED IN THE PRESENT DISCUSSION CONTAINED THE "ASSIGNMENT OF CLAIMS" PROVISION SET FORTH IN STANDARD FORM 32, OCTOBER 1957 EDITION, WHICH READS, IN PERTINENT PART, AS FOLLOWS:

"* * * CLAIMS FOR MONIES DUE OR TO BECOME DUE THE CONTRACTOR FROM THE GOVERNMENT UNDER THIS CONTRACT MAY BE ASSIGNED TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION * * * AND MAY THEREAFTER BE FURTHER ASSIGNED AND REASSIGNED TO ANY SUCH INSTITUTION.'

WE THINK THE CLEAR INTENT OF CONGRESS AS EXPRESSED IN 31 U.S.C. 203 IS THAT ACCOUNTS RECEIVABLE UNDER A GOVERNMENT CONTRACT SHALL NOT BE SUBJECT TO MORE THAN ONE PERFECTED ASSIGNMENT AT ANY GIVEN TIME WHERE THE CONTRACTUAL LANGUAGE PERMITS REASSIGNMENT. OUT OF REGARD FOR THE REALITIES OF PRESENT DAY FINANCING, THE EXECUTION OF A RELEASE BY THE FIRST ASSIGNEE A SHORT TIME AFTER THE DATE OF THE SECOND ASSIGNMENT MUST NOT BE CONSTRUED AS PERMANENTLY VITIATING THE VALIDITY OF THE LATTER ASSIGNMENT. IT IS ONLY NATURAL FOR THE FIRST ASSIGNEE TO DEMAND SATISFACTION OF HIS OBLIGATION AS A CONDITION PRECEDENT TO THE EXECUTION OF A RELEASE, AND MORE OFTEN THAN NOT THE ASSIGNOR WILL BE CONSTRAINED TO SECURE THE SECOND ASSIGNEE BEFOREHAND AS A MEANS OF ACQUIRING THE RESOURCES NECESSARY TO ACHIEVE THIS END. COMPARE THE DURANT CASE WHERE A RELEASE OF THE FIRST ASSIGNMENT WAS NOT EXECUTED UNTIL APPROXIMATELY TWO YEARS AFTER NOTICE OF THE SECOND ASSIGNMENT HAD BEEN RECEIVED BY THE GOVERNMENT AND WHERE NO COPY OF THE RELEASE WAS EVER DISPATCHED TO THE GOVERNMENT.

FOR THE ABOVE REASONS WE ARE DIRECTING OUR CLAIMS DIVISION TO ISSUE A CERTIFICATE OF SETTLEMENT FOR THE AMOUNT REMAINING DUE UNDER THE CONTRACTS IN FAVOR OF THE TRUSTEE IN BANKRUPTCY OF SILVER REFRIGERATION MANUFACTURING CORPORATION, WITHOUT OFFSET, FOR PAYMENT TO THE MASTAN COMPANY IN ACCORDANCE WITH THE REFEREE'S ORDER OF MAY 15, 1964.