B-155908, JAN. 22, 1965

B-155908, JAN. 22, 1965

TO JACKSON, GRAY AND LASKEY:

THIS REFERS TO YOUR LETTERS OF DECEMBER 21, 1964, REQUESTING RECONSIDERATION IN BEHALF OF NEW AMSTERDAM CASUALTY COMPANY OF THE SETTLEMENT DATED NOVEMBER 10, 1964.

THE AMOUNT OF $10,161.76 REMAINS UNPAID UNDER CONTRACT NO. DA-08-123 ENG- 4696, EXECUTED BY THE DEPARTMENT OF THE ARMY WITH FLAGG CONSTRUCTION COMPANY. NEW AMSTERDAM, AS SURETY UNDER THE CONTRACT, STATES THAT IT HAS PAID OUT THE SUM OF $43,665.27 TO SUPPLIERS FOR LABOR AND MATERIAL. THE CONTRACTOR HAS BEEN ADJUDICATED A BANKRUPT. (DOCKET NUMBER VK-64-220, UNITED STATES BANKRUPTCY COURT OF PORTSMOUTH, NEW HAMPSHIRE.)

YOU CONTEND THAT THE REMAINING BALANCE SHOULD BE PAID TO THE SURETY IN ACCORDANCE WITH THE HOLDING OF THE SUPREME COURT IN THE CASE OF PEARLMAN V. RELIANCE INSURANCE CO., 371 U.S. 132 (1962). IN THAT CASE THE COURT RECOGNIZED THE SUPERIOR RIGHTS OF THE SURETY UNDER A GOVERNMENT CONTRACT TO THE FUNDS WITHHELD FROM THE CONTRACTOR AS AGAINST THE CLAIM OF A TRUSTEE IN BANKRUPTCY.

THIS OFFICE, UNLIKE A COURT, HAS NO POWER TO FINALLY ADJUDICATE CONFLICTING CLAIMS OF A SURETY AND A TRUSTEE TO THE RETAINED CONTRACT BALANCE. UNDER A SIMILAR SET OF FACTS CONSIDERED IN B-150606, MARCH 7, 1963, WE STATED AS FOLLOWS:

"IN THE PEARLMAN CASE THE COURT WAS ABLE CONCLUSIVELY TO ADJUDICATE THE RIGHTS OF ALL OF THE INTERESTED PARTIES CONCERNED. NO SUCH FINAL ADJUDICATION WOULD, HOWEVER, RESULT FROM ADMINISTRATION DISPOSITION OF THE MATTER. IN THIS CONNECTION IT SHOULD BE NOTED THAT THE RIGHT OF THE SURETY TO SUBROGATION IS AN EQUITABLE RIGHT AND IS PREDICATED UPON THE PAYMENT OF ALL CLAIMS FOR LABOR AND MATERIALS ARISING UNDER THE CONTRACT. UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73 (1920). ASCERTAINMENT OF THE FACTS IN THIS RESPECT APPEARS TO BE A MATTER FOR JUDICIAL RATHER THAN ADMINISTRATIVE COGNIZANCE AND, SINCE THE ADMINISTRATIVE DECISION COULD NOT BE CONSIDERED RES JUDICATA, THE GOVERNMENT MIGHT BE SUBJECT TO DOUBLE LIABILITY SHOULD ANOTHER CLAIMANT APPEAR IN THE FUTURE.

"SINCE IN THIS CASE THE CLAIM OF THE SURETY IS DISPUTED BY THE TRUSTEE, WE DO NOT FEEL THAT WE CAN PROPERLY AUTHORIZE PAYMENT TO EITHER THE SURETY OR THE TRUSTEE EXCEPT PURSUANT TO AGREEMENT OF THE PARTIES OR TO AN ORDER OF A COURT OF APPROPRIATE JURISDICTION. IN ORDER TO HAVE THE MATTER RESOLVED AS PROMPTLY AS POSSIBLE, THE SURETY AND TRUSTEE MAY BE ADVISED THAT, IF THE SURETY AGREES, THE GOVERNMENT WILL TURN THE AMOUNT AT ISSUE OVER TO THE TRUSTEE SO THAT THE SURETY MAY PURSUE ITS REMEDY IN THE BANKRUPTCY COURT. OTHERWISE PAYMENT SHOULD BE WITHHELD PENDING JUDICIAL DETERMINATION OF THE RIGHTS OF THE PARTIES IN SUCH PROCEEDINGS AS THEY, OR EITHER OF THEM, MAY CHOOSE TO INSTITUTE.'

ACCORDINGLY, WE BELIEVE THE INTERESTS OF THE UNITED STATES REQUIRE THAT NO PAYMENT BE MADE EITHER TO THE SURETY OR TO THE TRUSTEE IN BANKRUPTCY EXCEPT PURSUANT TO AN AGREEMENT OF THE PARTIES OR TO THE ORDER OF A COURT OF APPROPRIATE JURISDICTION. OF COURSE, THE REMAINING BALANCE MAY BE SUBJECT TO ANY UNPAID AMOUNTS DUE THE UNITED STATES. SEE UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234; 18 COMP. GEN. 301.