B-158212, FEB. 21, 1966

B-158212, FEB. 21, 1966

TO MR. EDWARD KNEUPER, JR.:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 17, 1965, REQUESTING A DECISION WHETHER A VOUCHER DRAWN IN FAVOR OF THE NORTH STATE BANK OF AMARILLO, AMARILLO, TEXAS, IN THE AMOUNT OF $9,268.06 MAY BE CERTIFIED FOR PAYMENT UNDER THE FOLLOWING CIRCUMSTANCES.

ON OCTOBER 1, 1964, THE UNITED STATES DEPARTMENT OF THE INTERIOR, BUREAU OF RECLAMATION, AWARDED A CONTRACT, NO. 14-06-500-1027, SPECIFICATION NO. 500C-179, TO TCO, INC., A TEXAS CORPORATION, FOR THE CONSTRUCTION OF PUBLIC USE FACILITIES FOR THE BLUE WEST AREA, SANFORD RESERVOIR, CANADIAN RIVER PROJECT, TEXAS. ON JULY 19, 1965, TCO, IN ACCORDANCE WITH THE PROVISIONS IN THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, 41 U.S.C. 15, ASSIGNED TO THE NORTH STATE BANK OF AMARILLO---

"* * * ALL MONIES DUE AND TO BECOME DUE FROM THE UNITED STATES OF AMERICA * * * UNDER A CERTAIN CONTRACT NUMBERED 14-06-500-1027 DATED SEPTEMBER 10, 1964, SPECIFICATION NO. 500C-179 BETWEEN THE UNITED STATES OF AMERICA ACTING THROUGH THE DEPARTMENT OF INTERIOR, BUREAU OF RECLAMATION, AND THE ASSIGNOR TCO, INC., * * * AND UNDER ANY AND ALL AMENDMENTS THEREOF AND SUPPLEMENTS THERETO. THE ASSIGNOR HEREBY AUTHORIZES AND DIRECTS THE UNITED STATES OF AMERICA TO MAKE ALL PAYMENTS DUE UNDER SAID * * * CONTRACTS AND ANY AND ALL AMENDMENTS THEREOF AND SUPPLEMENTS THERETO DIRECT TO THE ASSIGNEE. * * *"

BY LETTER DATED JULY 21, 1965, THE ASSIGNEE SUBMITTED A NOTICE AND COPY OF THIS ASSIGNMENT TO THE CONTRACTING OFFICER WHO ACKNOWLEDGED RECEIPT OF SAME ON JULY 28, 1965. THE CONTRACT PROVIDED FOR PROGRESS PAYMENTS TO BE MADE AT MONTHLY INTERVALS, AND THE NEXT ONE DUE AFTER NOTICE OF ASSIGNMENT HAD BEEN RECEIVED WAS FOR SERVICES RENDERED DURING THE MONTH OF JULY, 1965, TOTALING $9,268.06; BY MISTAKE THIS AMOUNT WAS PAID TO TCO RATHER THAN TO THE ASSIGNEE. ALTHOUGH REPEATED EFFORTS HAVE BEEN MADE TO SECURE THE RETURN OF THIS SUM TO THE UNITED STATES, TCO HAS PERSISTENTLY REFUSED TO MAKE REMITTANCE EITHER TO THE UNITED STATES OR TO THE ASSIGNEE. ALL SUCCEEDING PAYMENTS DUE UNDER THE CONTRACT WERE PROPERLY MADE TO THE ASSIGNEE WHO RELEASED THE GOVERNMENT FROM ALL CLAIMS AND DEMANDS WHATSOEVER UNDER THIS CONTRACT EXCEPT THE $9,268.06 ERRONEOUSLY PAID TO THE ASSIGNOR AFTER THE CONTRACTING OFFICER HAD NOTICE OF THE ASSIGNMENT.

ON SEPTEMBER 14, 1965, TCO, INC., WAS AWARDED ANOTHER CONTRACT BY THE DEPARTMENT OF THE INTERIOR, BUREAU OF RECLAMATION, NO. 14-06-500 1163, SPECIFICATION NO. 500C-209, FOR THE CONSTRUCTION OF PUBLIC USE FACILITIES AT PLUM CREEK, SANFORD RESERVOIR, CANADIAN RIVER PROJECT, TEXAS. THIS CONTRACT ALSO PROVIDED FOR PROGRESS PAYMENTS AT MONTHLY INTERVALS. NOVEMBER 29, 1965, TCO MADE AN ASSIGNMENT TO THE FIRST NATIONAL BANK IN ALBUQUERQUE, ALBUQUERQUE, NEW MEXICO, OF "* * * ALL MONEYS DUE AND TO BECOME DUE FROM THE UNITED STATES OF AMERICA * * *" UNDER CONTRACT NO. 14- 06-500-1163. A NOTICE AND COPY OF THIS ASSIGNMENT WAS FORWARDED TO THE CONTRACTING OFFICER WHO ACKNOWLEDGED RECEIPT ON DECEMBER 13, 1965. EARNINGS UNDER THIS CONTRACT DURING THE MONTHS OF OCTOBER 1965, AND NOVEMBER 1965, TOTALED $16,769.40. HOWEVER, THIS MONEY HAS NOT BEEN PAID TO THE ASSIGNEE, BUT IS BEING RETAINED AND IT IS PROPOSED TO OFFSET $9,268.06 OF THE NET EARNINGS UNDER THE SECOND CONTRACT AGAINST THE AMOUNT IMPROPERLY PAID TO TCO PREVIOUSLY.

IT IS WELL-SETTLED LAW THAT ONCE AN OBLIGOR (THE UNITED STATES) HAS NOTICE OF AN ASSIGNMENT, IT PAYS THE ASSIGNOR AT ITS PERIL AND IS, THEREFORE, LIABLE TO THE ASSIGNEE FOR THE AMOUNT OF THE ERRONEOUS PAYMENT. SEE CENTRAL BANK OF RICHMOND, VA. V. THE UNITED STATES, 117 CT.CL. 389. THE ONLY QUESTION THAT REMAINS THEN, IS WHETHER THE GOVERNMENT MAY SETOFF THE AMOUNT OF THE ERRONEOUS PAYMENT UNDER THE FIRST CONTRACT AGAINST FUNDS IN THE HANDS OF THE GOVERNMENT UNDER THE SECOND CONTRACT. IT MAY BE STATED AS A GENERAL PROPOSITION THAT, IN THE EVENT OF AN ASSIGNMENT AND, IN THE ABSENCE OF A NO-SETOFF PROVISION, AN ASSIGNEE'S RIGHT AGAINST THE OBLIGOR IS SUBJECT TO ALL LIMITATIONS OF THE ASSIGNOR'S RIGHT, TO ALL ABSOLUTE AND TEMPORARY DEFENSES THERETO, AND TO ALL SETOFFS AND COUNTERCLAIMS OF THE OBLIGOR WHICH WOULD HAVE BEEN AVAILABLE AGAINST THE ASSIGNOR HAD THERE BEEN NO ASSIGNMENT, PROVIDED THAT SUCH DEFENSES AND SETOFFS ARE BASED ON FACTS EXISTING AT THE TIME OF THE ASSIGNMENT, OR ARE BASED ON FACTS ARISING THEREAFTER PRIOR TO THE KNOWLEDGE OF THE ASSIGNMENT BY THE OBLIGOR. SEE SECTION 167, RESTATEMENT OF THE LAW OF CONTRACTS. THE CONTRACT IN QUESTION, NO. 14-06-500-1163, DID NOT CONTAIN A NO-SETOFF PROVISION, AND THE FACTS GIVING RISE TO THE PROPOSED SETOFF, SPECIFICALLY THE ERRONEOUS PAYMENT TO TCO, WERE IN EXISTENCE PRIOR TO THE ASSIGNMENT ON NOVEMBER 29, 1965, TO THE FIRST NATIONAL BANK IN ALBUQUERQUE. IN THE CENTRAL BANK OF RICHMOND CASE, SUPRA, WHERE AFTER NOTICE OF A VALID ASSIGNMENT, THE GOVERNMENT MADE A PAYMENT TO THE CONTRACTOR RATHER THAN TO THE ASSIGNEE, THE COURT STATED AT PAGE 399:

"THE GOVERNMENT HAVING RECEIVED TIMELY NOTICE OF (THE ASSIGNMENT) PAID (THE ASSIGNOR) AT ITS PERIL. * * * AND WHERE AN ERRONEOUS PAYMENT IS MADE BY THE GOVERNMENT IT IS NO BAR TO THE RIGHTFUL CLAIMANT.'

THE COURT WENT ON TO SAY THAT INASMUCH AS THE ASSIGNOR CASHED THE CHECK AND USED THE PROCEEDS FOR HIS OWN USE, HE HAS MONEY "WHICH DOES NOT BELONG TO HIM FOR WHICH THE GOVERNMENT IS LIABLE TO (THE ASSIGNEE) AS WE HAVE DECIDED. THE GOVERNMENT DOES HAVE A CLAIM AGAINST HIM (THE ASSIGNOR) FOR THAT AMOUNT * * *.' THE COURT THEN ENTERED A JUDGMENT AGAINST THE ASSIGNOR IN THE AMOUNT OF THE ERRONEOUS PAYMENT. THEREFORE, THE UNITED STATES HAS A RIGHT TO RECOVER THE $9,268.06 FROM TCO, AND THIS IS A LIMITATION ON ITS (TCO-S) RIGHT TO THAT AMOUNT NOW IN THE HANDS OF THE GOVERNMENT AND, IT FOLLOWS, IT IS ALSO A LIMITATION ON THE RIGHT OF THE ASSIGNEE UNDER THE SECOND CONTRACT TO THE MONEY.

FOR THE FOREGOING REASONS, THE UNITED STATES MAY OFFSET $9,268.06 OF THE NET EARNINGS UNDER THE SECOND CONTRACT AGAINST THE AMOUNT ERRONEOUSLY PAID TO THE CONTRACTOR UNDER THE FIRST CONTRACT. CERTIFICATION OF THE VOUCHER SUBMITTED WITH YOUR LETTER FOR PAYMENT IS AUTHORIZED, IF OTHERWISE CORRECT.

THE VOUCHER AND THE OTHER PAPERS SUBMITTED WITH YOUR LETTER ARE RETURNED.