The Secretary of the Navy, B-125183

• Decision Date: 22 July 1969
• Docket Number: B-125183
• Parties: THE SECRETARY OF THE NAVY:
• Court: Comptroller General of the United States

49 Comp.Gen. 44

THE SECRETARY OF THE NAVY:

No. B-125183

Comptroller General of the United States

July 22, 1969

Set-off -- contract payments -- tax debts the right of the United States as a creditor to offset the amount owed to a contractor is not precluded by assignee and attorney claims where the loan by the assignee bank pursuant to the assignment of claims act of 1940, as amended, had been paid and the only outstanding loan is not within the orbit of the act, not having been made for the purpose of performing government contracts, and where the attorney's fee is a matter between attorney and client, absent a statutory provision or an agreement based on such a provision for payment to the attorney by the government. Therefore, an award to a contractor on the basis that a contract termination should have been for convenience and not for default, May be set off against the contractor's tax liability.

A letter dated June 10, 1969, with enclosures, from the office of general counsel, reference ogc:ack:srr, requests our decision on the proper disposition of the sum of $25, 500 due under modification no. P001, dated November 18, 1968, to contract no. N140-62236s-54294b, dated April 14, 1955. The contractor, sol O. Schlesinger, d/b/a ideal uniform cap company, demands payment on behalf of an assignee bank. The contractor's attorney, harold F. Blasky, contends that he is entitled to $5, 000 of the amount due for services rendered the contractor. The internal revenue service contends that the amount due should be set off against a default judgment entered in 1965 against sol O. Schlesinger in the amount of $184, 433.27.

The record in this case indicates that after receiving notice of award in April 1955, the contractor undertook performance. However, before any of the service caps called for had been delivered, the contract was terminated for default on July 1 1955. The contractor appealed the default termination without avail to the secretary of the navy. An appeal to the armed services board of contract appeals resulted in a decision ASBCA no. 2947, October 31, 1955, adverse to the contractor. A motion to the board for reconsideration was denied on December 20, 1955. Suit was filed in the court of claims on April 9, 1956. The court held, on February 16, 1968, that the default termination was improper and the contractor was "entitled to have his account settled as if his contract had been formally terminated for the government's convenience." Sol O. Schlesinger v United States, 182 Ct. C1. 571. The court remanded the case to the ASBCA for a determination of the amount, if any, to which the contractor would have been entitled if his contract had been terminated for convenience.

Thereafter the contractor, through his attorney, negotiated a settlement of his claim with the navy purchasing office for $25, 000 including a $5, 000 attorney's fee. The settlement agreement is modification no. P001 referred to above. The navy is holding a check in the amount of $25, 500, payable to sol O. Schlesinger or the treasurer of the United States " pending our decision.

Mr. Schlesinger contends that after award of the contract and prior to its termination, he executed an assignment of the monies due or to become due under the contract to the chemical corn exchange bank in consideration of loans made to him. He contends that a properly acknowledged notice of the assignment was received by the bank from the government. However, he has been unable to locate any documents pertaining to the assignment. Search of the records of both the navy and this office pertaining to the contract has also been unfruitful. It appears from the evidence submitted by Mr. Schlesinger to establish the existence of the assignment that the loan from the purported assignee was paid in full on August 24, 1956. Mr. Schlesinger states that he secured a loan of $10, 000 from the same bank in 1966 and this loan remains unpaid, although the bank has instituted foreclosure procedures against Mr. Schlesinger's property. The bank has submitted no claim under the purported assignment.

Assuming arguendo, that there was a valid assignment containing a "no set-off" provision pursuant to the assignment of claims act of 1940, as amended, 31 U.S.C. 203 and 41 U.S.C. 15, as Mr. Schlesinger contends, we do not believe this would preclude the government from exercising the right of set-off in partial satisfaction of the judgment against Mr. Schlesinger. It is well established that the government has the same right of set-off "which belongs to every creditor, to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him." United States v munsey trust co., 332 U.S. 234; mcknight v United States, 98 U.S. 179; gratiot v United States, 40 U.S. 336. Although the "no set-off" provision of the assignment of claims act ordinarily protects the assignee from any set off until notice of the revocation or release of the assignment has been received, we have taken the position that if the amount payable under an assigned contract is in excess of the amount owed by the contractor to the assignee such excess May be set off to satisfy debts owed by the contractor to the government. 37 Comp.Gen. 9 (1957). Since the amount lent the contractor...