B-159132, OCT. 27, 1966

B-159132, OCT. 27, 1966

TO FIREMAN'S FUND, AMERICAN INSURANCE COMPANIES:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 12, 1966, WITH ENCLOSURE, REQUESTING THAT OUR OFFICE RECONSIDER THE CONCLUSION IN THE LETTER OF JULY 15, 1966, FROM OUR CLAIMS DIVISION, WHICH ADVISED YOU THAT THE GOVERNMENT HAD THE RIGHT TO APPLY AMOUNTS DUE JERRY PITMAN, CONTRACTOR, IN PARTIAL LIQUIDATION OF UNPAID FEDERAL TAXES AND INTEREST. IN THIS CONNECTION YOU CONTEND THAT OUR DECISION, B-132347, SEPTEMBER 20, 1957, IS INCONSISTENT WITH THE ADVICE IN THE LETTER FROM CLAIMS DIVISION DATED JULY 15, 1966.

IN B-132347, SEPTEMBER 20, 1957, THE SPECIFIC QUESTION FOR CONSIDERATION WAS WHETHER THE GOVERNMENT COULD SET OFF A TAX DEBT AGAINST THE ASSIGNEE IN VIEW OF THE "NO SET-OFF" PROVISION IN THE ASSIGNMENT. THE SURETY'S RELATIONSHIP TO THE CONTRACTOR AND THE BANK AS ASSIGNEE WAS CONSIDERED ONLY AS IT AFFECTED THE VALIDITY OF THE ASSIGNMENT TO THE BANK UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940. WE DID NOT CONSIDER THE SPECIFIC ISSUE IN THE INSTANT CASE, WHETHER THE GOVERNMENT COULD SET OFF A TAX DEBT AGAINST THE SURETY.

IN B-132347, SEPTEMBER 20, 1957, WE MENTIONED 31 COMP. GEN. 103, IN WHICH WE APPROVED A SO-CALLED "TAKEOVER AGREEMENT" BY WHICH THE GOVERNMENT AGREED TO PAY THE SURETY ALL CONTRACT BALANCES UP TO THE COST OF COMPLETION, DESPITE TAXES OWED BY THE CONTRACTOR, IN RETURN FOR THE SURETY'S PROMISE TO COMPLETE THE CONTRACT WORK. IN 31 COMP. GEN. 103, 105, WE STATED AS FOLLOWS WITH RESPECT TO THE GOVERNMENT'S RIGHT OF SET OFF AGAINST THE SURETY:

"THIS PRECISE POINT WAS CONSIDERED IN THE CASE OF STANDARD ACCIDENT INSURANCE COMPANY V. UNITED STATES, DECIDED BY THE COURT OF CLAIMS JUNE 5, 1951, C.CLS. NO. 46116 (119 CT.CL. 749, 1951). THERE, AS HERE, CLAIM WAS MADE BY A COMPLETING SURETY TO RETAINED PERCENTAGES IN THE HANDS OF THE GOVERNMENT. THE COURT RULED THAT THE GOVERNMENT HAD A RIGHT TO SET OFF THE CONTRACTOR'S TAX LIABILITY AGAINST SUCH RETAINED PERCENTAGES DESPITE THE SURETY'S CLAIM, STATING IN ITS OPINION AS FOLLOWS:

"* * * THE RATIONALE OF THE MUNSEY CASE (332 U.S. 234) APPLIES AND WOULD POSTPONE PLAINTIFF'S RIGHT TO THE RETAINED PERCENTAGES TO THAT OF THE UNITED STATES EVEN IF THE CONTRACTOR HAD NOT BEEN FORMALLY DECLARED INSOLVENT AND EVEN IF THE CONTRACTOR'S DEBT TO THE UNITED STATES BORE NO RELATION TO THE CONTRACT FROM WHICH THE RETAINED PERCENTAGES DERIVED. * *

"THE COURT STATED, IN EFFECT, THAT THE SURETY'S RIGHTS DERIVED PRIMARILY FROM ITS SUBROGATION TO THE CONTRACTOR, AND THAT IT COULD NOT CLAIM RIGHTS UNDER THE CONTRACT BY SUBROGATION TO THE GOVERNMENT WITHOUT ASSUMING THE CONTRACTOR'S LIABILITIES AS WELL. UNDER THE RULE ESTABLISHED BY THE STANDARD ACCIDENT CASE, IT IS EVIDENT THAT ANY RIGHTS THE SURETIES MAY HAVE TO PAYMENT OF ANY PART OF THE RETAINED PERCENTAGES DEPEND ENTIRELY UPON THE COMPLETION AGREEMENT BETWEEN THE SURETIES AND THE GOVERNMENT. THIS IS EQUALLY TRUE AS FAR AS THE UNPAID PROGRESS ESTIMATES ARE CONCERNED. * * *.'

IN THE INSTANT CASE, THERE IS NO "TAKEOVER AGREEMENT" SO FAR AS THE CONTRACT FUNDS EARNED BY THE CONTRACTOR PRIOR TO DEFAULT ARE CONCERNED, WHICH SEEM TO BE THE ONLY FUNDS IN DISPUTE.

PURSUANT TO OUR REVIEW WE FIND THAT THE FACTS OF THE INSTANT CASE ARE MATERIALLY DIFFERENT FROM THE FACTS IN B-132347, SEPTEMBER 20, 1957, AND 31 COMP. GEN. 103, AND THESE DECISIONS ARE NOT APPLICABLE TO THE INSTANT MATTER. IN THESE CIRCUMSTANCES WE FIND NO INCONSISTENCY BETWEEN THE HOLDING IN B-132347, SEPTEMBER 20, 1957, AND THE LETTER FROM CLAIMS DIVISION DATED JULY 15, 1966; THEREFORE, UPON RECONSIDERATION YOUR CLAIM IS DENIED.