B-40491 March 17, 1944

B-40491 March 17, 1944

Fred W. Ford, Authorized Certifying Officer Federal Public Housing Authority, Retion 1, 24 School Street, Boston 8, Massachusetts

Dear Mr. Ford:

Reference is made to your letter of February 24, 1944, enclosing voucher No. EF-43013-170 in the net amount of $2,127.89, drawn in favor of Karl F. Jackson, representing a proposed payment in connection with contract No. HA (Vt-43013) cph-101, dated May 20, 1943. It is stated that said voucher is in proper form and certified for payment but that conflicting claims have been asserted to the remaining monies due under the involved contract by the Peerless Casualty Company of Keene, New Hampshire, surety on the performance and payment bonds of the contractor, and the Somerville National Bank of Somerville, Massachusetts, assignee under an assignment made in accordance with the Assignment of Claims Act of 1949, 54 Stat. 1029. In view of such conflict decision is requested "as to the disposition to be made of the inclosed voucher and remaining monies due under the above-described contract."

The facts of the matter are set forth in your letter, in pertinent part, as follows:

"1. Contract No. HA(Vt-43013) cph-101 for the construction of a cafeteria building and maintenance building was entered into on May 20,1943, by Karl F. Jackson, Contractor, and the United States of America, acting through the Federal Public Housing Authority.

"2. On June 2, 1943, Karl F. Jackson assigned to the Somerville National Bank of Somerville, Massachusetts, all monies due or to become due under the aforesaid contract. The assignment was made in accordance with the provisions of the Assignment of Claims Act of 1940, and proper notice was given to this Authority and acknowledged on June 3, 1943. Thereafter, monies due under the contract up to the present time were paid over to the Assignee.

"3. On December 23, 1943, the Peerless Casualty Company of Keene, New Hampshire, mailed to this office copies of an assignment dated September 1, 1943, from Karl F. Jackson to it of all monies due or to become due under the terms of the aforesaid contract, together with a letter from the Contractor requesting this Authority to recognize the assignment. This Authority refused to recognize the assignment and returned the same to the Attorney for the Surety on the grounds that the assignment was not made in accordance with the provisions of the Assignment of Claims Act of 1940, that a Surety Company is not a financing institution and is not, therefore, an eligible Assignee within the meaning of the Assignment of Claims Act of 1940, and all monies due or to become due under the contract had been previously assigned to the Somerville National Bank of Somerville, Massachusetts.

"4. At the present time, the contract has been fully performed with the exception of minor corrective work, and while there has been no default under the contract, it appears that the Contractor is in financial straits and owes substantial sums of money to subcontractors and materialmen who have supplied services and materials for the performance of the contract.

"5. Under date of February 5, 1944, the Surety through its Attorney wrote to this Authority advising us that there are claims of subcontractors and materialmen outstanding against the Contractor in the liquidated amount of $3,352.27 together with two claims, the amounts of which are as yet unliquidated. Some of the claimants have presented their claims to the Surety, but to our knowledge no suits have been instituted under the Payment Bond nor has the Surety paid any of the claims. The Surety stated that its letter was written '...in order that any monies due or to become due under this contract should be held for the benefit of the labor and materialmen who have not yet been paid, and to advise you that the Surety Company is subrogated to the rights of the Federal Public Housing Authority to see to it that this money is applied in payment of these bills.'"

In 22 Comp. Gen. 520, 524, 525, it was stated:

"There can be no question but that the terms of the Assignment of Claims Act-specifically that portion of the act quoted and underlined in your letter-preclude the simultaneous existence of more than one valid assignment under a given contract unless expressly permitted by such contract. The assignments by the contractor to the bank covered all amounts payable under the contracts here involved and the contracts do not expressly permit more than one assignment to be made. Proper notices and copies of such assignments were filed--if not promptly, at least prior to the date of the assignment by the contractor to the surety. Since the bank as assignee under the first assignment would appear to have complied with the Assignment of Claims Act in all material respects; and since such assignment--under the terms of the act--constitutes 'a valid assignment for all purposes,' it necessarily follows that the subsequent assignment to the surety is null and void under section 3477, Revised Statutes, 31 U.S.C.A. 203.

"Furthermore, aside from the Assignment of Claims Act, since the contractor transferred all his rights in all amounts payable under the two contracts to the bank under the first assignment, he had nothing left to convey under the later assignment to the surety. See Judson v. Corcoran, 17 How. 612, 614; Salem Company v. Manufacturers' Company, 264 U.S. 182, 197."

Likewise, in the present case, it appears that the assignment by the contractor to the Somerville National Bank on June 2, 1943, was pursuant to the Assignment of Claims Act and that the bank thereafter complied with said act in all material respects, including the filing of proper notices an copies of such assignment. Consequently, the subsequent assignment of September 2, 1943, by the contractor to the surety was null and void and the action of the Authority in refusing to recognize such assignment was entirely proper. Moreover, the valid assignment to the Somerville National Bank must be considered as having vested in said bank as assignee whatever right the contractor otherwise would have in monies coming due form the United States under the involved contract.

It is pointed out in your letter that the Government had the right to terminate the contract upon the refusal or failure of the contractor to make prompt payment to persons supplying labor or material for work under the contract. But it is not understood that any such action has been taken. In fact, it is stated that at the present time the contract has been fully performed, with the exception of minor corrective work. And while the surety has brought to the attention of the Authority the fact that there are outstanding claims for labor and material against the contractor, the surety does not assert that it has paid all--or, for that matter, any--of such claims.

Apparently, it is the contention of the surety that it is subrogated to the rights of the Federal Public Housing Authority to "see to it" that amounts remaining to be paid under the contract are applied in satisfaction of the bills for labor and material. The right of subrogation is an equitable one and ordinarily must be established in a court of competent equity jurisdiction. Miller v. Assurance Society, Ltd., 39 F. 2d 25; Cooper v. Sagert, 223 Pac. 943. Also, it is inherent in the doctrine of subrogation that it may be enforced only after the debt has been paid in full. 60 C.J. 28 (p. 719 et seq). Accordingly, since the surety in the instant case makes no contention that it has paid all the outstanding bills for labor and material, it is extremely doubtful that the asserted right of subrogation would be recognized even by the courts. Cf. 17 Comp. Gen. 97; id. 309.

Moreover, one of the purposes of the act of August 24, 1935, 49 Stat. 793, under which the payment bond was executed, was to give persons furnishing labor and materials the right to maintain an action against the contractor and the surety on the payment bond and to relieve the Government of any duty or responsibility with respect to such claims. See Fleisher Engineering and Construction Company et al. v. United States, 311 U.S. 15. Having completed the contract to the extent indicated, the contractor is entitled to be paid the amounts so earned. 10 Comp. Gen. 433. And to such right the bank has succeeded by virtue of its statutory assignment.

However, it is noted that the enclosed voucher No. EF-43013-170 is drawn in favor of Karl F. Jackson, with a notation to the effect that check in payment thereof is to be mailed to the assignee, Somerville National Bank, Union Square, Somerville, Massachusetts. Since said bank apparently has a valid assignment under the Assignment of Claims Act, vouchers as well as checks covering payments to such assignee under the contract should be drawn in favor of the bank, as assignee, rather than the contractor. But, as pointed out in 20 Comp. Gen. 295, 297, the voucher, invoice, or other data in support of such direct payments to the assignee should clearly indicate that the contractor recognizes the assignment, its validity, and the right of the assignee to receive the payment. Accordingly, upon correction of the voucher or the preparation and execution of a new voucher in accordance with the above, no reason appears why payment should not be made to the assignee, the Somerville National Bank.

The conclusion reached herein as to the right of the respective parties involved necessarily is based upon the present state of the facts as described in your letter. If there be doubt as to whom a future payment, or payments, under the contract should be made the voucher or vouchers should be forwarded to this office for direct settlement.

The voucher and supporting papers are returned herewith.

Respectfully,

(Signed) Lindsay C. Warren Comptroller General of the United States