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Development was indebted to the government in the sum of approximately $332,602.26 for excess costs and other damages resulting from the company's performance under seven Army contracts. No moneys were owed to defendant by General Development under the instant contract.

By letter under date of November 16, 1967, plaintiff demanded that defendant proffer $43,848.41. The defendant refused; and on June 14, 1968, plaintiff brought action to recover that sum in this court.

On May 22, 1969, the trustee in bankruptcy moved to intervene in this action. Thereafter, on June 3, 1969, the court allowed a motion by the trustee to withdraw its motion to intervene; and the trustee no longer asserts any interest in the sum plaintiff seeks.


Since 1792, federal statutes have restricted the assignment of government contract claims. 4 1 Stat. 245 § 2 (1792). Such assignments were invalid with respect to the government 5. until 1940, when, "to assist in the national-defense program," the anti-assignment statutes were amended to permit the assignment of contracts for more than $1,000 as collateral for performance loans made by financial institutions. This was intended to broaden the base of competitive bidders to include small companies which, because of their inability to finance the cost of contract performance and the statutory prohibition against assignment of the proceeds of the contract, were unable to undertake the performance of government contracts. H.R. Rep. No. 2925, 76th Cong., 3d Sess, 2 (1940).

.( To the extent pertinent to this case, the Assignment of Claims Act of 1940, as amended, provides:

No contract or order, or any interest
therein, shall be transferred by the party
to whom such contract or order is given to
any other party, and any such transfer shall
cause the annulment of the contract or order
transferred, so far as the United States are
concerned. All rights of action, however,
for any breach of such contract by the con-
tracting parties, are reserved to the United

The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating

The present statute is based on one section of the Act of February 26, 1853, 10 Stat. 170 (codified as Rev. Stat. § 3477 (1878)].

5when the rights of private parties alone are involved, assignments are generally upheld, on the theroy that the statute affords protection solely for the government. See Martin v. National Sur. Co., 300 U.S. 588 (1937).

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$1,000 or more, are assigned to a bank, trust company, or other financing institution, including any Federal lending agency: Provided: 3. That unless otherwise expressly permitted by such contract any such assignment shall cover all amounts payable under such contract and not already paid, shall not be made to more than one party, and shall not be subject to further assignment, except that any such assignment may be made to one party as agent or trustee for two or more parties participating in such financing; 4. That in the event of any such assignment, the assignee thereof shall file written notice of the assignment together with a true copy of the instrument of assignment with (a) the contracting officer or the head of his department or agency; (b) the surety or sureties upon the bond or bonds, if any, in connection with such contract; and (c) the disbursing officer, if any, designated in such contract to make payment.

Notwithstanding any law to the contrary governing the validity of assignments, any assignment, pursuant to this section, shall constitute a valid assignment for all purposes.



Any contract of the Department of Defense, or any other department or agency of the United States designated by the President, except any such contract under which full payment has been made, may *** provide or be amended without consideration to provide that payments to be made to the assignee of any moneys due or to become due under such contract shall not be subject to reduction or set-off and if such provision or one to the same general effect has been at any time heretofore or is hereafter included or inserted in any such contract, payments to be made thereafter to any assignee of any moneys due or to become due under such contract *** shall not be subject to reduction or setoff for any liability of any nature of the assignor to the United States or any department or agency thereof which arises independently of such contract, or hereafter for any liability of the assignor on account of (1) renegotiation under any renegotiation statute or under any statutory renegotiation article in the contract, (2) fines, (3) penalties *** or (4) taxes, social security contributions, or the withholding or non-withholding of taxes or social security contributions, whether arising from or independently of such contract. 41 U.S.C. § 15 (1964).

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The defendant agrees that the assignment before the court comes within the "purview and intent" of the Assignment of Claims Act of 1940, and that it applies to all of the contract proceeds. Also, the defendant concedes that funds were advanced by plaintiff "for the performance of said Government contract." However, the defendant argues that it is, nonetheless, entitled to set off General Development's indebtedness to it (under the aforementioned Army contracts) against the sums admittedly due under the terms of the convenience termination, because the loans made for the performance of Contract No. DA-18-035-AMC-459 (A) have been repaid. In the circumstances of this case, defendant says the "no setoff" provisions of the contract and Act do not apply.

This case thus raises a narrow issue regarding the extent of the applicability of the ''no set-off" provisions. The language of the Act, its legislative history, and the cases which have interpreted it, are instructive.

As noted earlier, and acknowledged by the defendant, the Act, as amended, provides that assignments thereunder "shall cover all amounts payable under such contract and not already paid * * *" [Emphasis. supplied]; and permits the inclusion in government contracts of provisions to the effect that payments to assignees "shall not be subject to reduction or set-off for any liability of any nature of the assignor to the United States * * * which arises independently of such contract[s]."

There is no question in this case but that the indebtedness the defendant asserts it may set off against the amounts due under the convenience termination arose "independently'' of the subject contract. The legislative history of the 1940 Assignment of Claims Act indicates that it was just this type of indebtedness which Congress de termined should not be set off against contract proceeds. In explanation of the "no set-off" provision, which he offered as an amendment to H.R. 10464 [76th Cong., 3d Sess. (19406)], Senator Barkley stated:

* * * [T]he amendment merely provides that
when a contractor, in order to obtain money so
that he may perform his contract with the Govern-
ment under the defense program, assigns his con-
tract to a bank or trust company in order to get
money with which to proceed with the work, it
shall not be permissible to offset against the
claim or contract later an indebtedness which
the contractor may owe the Government on account
of some other contract or some other situation.
* * * 86 Cong. Rec. 12803 (1940) (Emphasis sup-

6on October 9, 1940, H.R. 10464 was enacted into law as the "Assignment of Claims Act of 1940."

See Central Bank v. United States, 345 U.S. 639 (1953); Esther H. Rose v. United States, 179 Ct. Cl. 224, 230-31, 373 F. 2d 963, 966 (1967); Joseph H, Coleman v. United States, 158 Ct. cl. 490, 492-93 (1962); and Chelsea Factors, Inc. v. United States, 149 Ct. 01. 202, 181 F. Supp. 685 (1960), for cases in which the statutory provision against set-offs was considered and interpreted.

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After carefully reading its provisions, we find nothing in the language of the applicable statute which supports defendant's contention. Moreover, the legislative history of the 1951 amendments to the Assignment of Claims Act of 1940 indicates that Congress considered and declined to enact a provision which would have assured the construction the defendant asserts.

In 1951, following a series of decisions of the Comptroller General narrowly construing the "no set-off" provision of the 1940 Act, Congress amended the Act to prohibit set-off or reduction for renegotiation, fines, and certain tax and penalty indebtedness, ''whether arising from or independently of" assigned contracts. 41 U.S.C. § 15 (1964) (See text of statute, supra). In comments to the Senate Committee on Banking and Currency on the proposed legislation, Acting Comptroller General Frank L. Yates noted that the set-off and reduction limitations afforded excessive protection, "due to the fact that the prohibitions against withholding or recovery apply to all assigned payments * * *" [Emphasis added]; and suggested that the "no set-off" provision be revised to require assignees to release their assignments upon repayment of performance loans and provide that the limitations not apply to "payments in excess of amounts paid or loaned to the assignor under any factoring arrangement, loan, discount, or advance made in connection with or secured by the assignment." S. Rep. No. 217, 82d Cong., 1st Sess. 8 '

8 (1951) [Emphasis added] .

Thereafter, the Committee revised its originally introduced bill (S. 998, 82d Cong., 1st Sess. (1951)] to reflect the Acting Camptroller General's set-off and reduction limitation suggestion.7 The Committee Report stated:

* * * [T]he amendment would continue the pro-
vision of the present law that, if an assigned
contract contains a "no set-off" clause, payments
made by the Government to the assignee bank will
not be subject to reduction or set-off because of
any claims of the Government against the contractor
which arise independently of the contract, but it
would also be made clear that the assignee would
be protected against set-off on account of claims
of the Government against the contractor arising
from renegotiation, fines, and penalties--claims

7 Apparently, the Acting Comptroller General's assignment release suggestion was not adopted.

which are ordinarily regarded as arising outside of
the assigned contract, In any event, however, where
the Government has claims against the contractor,
the Government would be allowed to withhold, out of
payments due an assignee bank, any amounts in excess
of the bank's interest in loans secured by such
assignments. S. Rep. No. 217, 82d Cong., 1st Sess.,
2-3 (1951) [Emphasis added].

On April 11, 1951, the amended S. 998 was reported out in the Senate.

The Senate, however, further amended S. 998. On April 24, 1951, H.R. 3692, a similar bill, was reported out in the House of Representatives [H.R. Rep. No. 376, 82d Cong., 1st Sess. (1951)]. The Senate Committee on Banking and Currency preferred H.R. 3692 to S, 998; and on April 25, 1951, Senator Robertson, speaking for the Committee, offered an amendment to S. 998, which had the effect of substituting the language of H.R. 3692 for that in the Committee bill. Among the differences between the bills was the absence of a set-off and reduction limitation provision in H.R. 3692 similar to that included in the amendment to S. 998 as a result of the Acting Comptroller General's comments. Senator Robertson explained:

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* * * The protection afforded the assignee
against claims, including those involving the so-
called "no set-off" clause, would be limited under
S. 998 to amounts loaned or advanced by the assignee,
whereas H.R. 3692 would not impose such limitations,
The reason for this difference is that as a practical
matter it would be difficult to determine the exact
amounts loaned or advanced where several contracts
are assigned to an assignee and provision is made
for revolving credits. 97 Cong. Rec. 4350 (1951)
[Emphasis added].

The substitutionary amendment was adopted; and on April 25, 1951, S. 998, as amended, passed the Senate. On May 1, 1951, the House passed the Senate bill; and on May 15, 1951, S, 998 was signed by the President and thereby enacted into law.

This court has heretofore pointed out that "[t]he progressive liberalization of the Act by its various amendments manifests the purpose of Congress to protect effectively assignments in accordance with the Act." Joseph H. Coleman, supra, 158 Ct. cl. at 492-93.

The cases on which defendant relies were decided on the basis of facts which are not presented in this case. Beaconwear Clothing Co. v. United States, 174 Ct, Cl. 40, 355 F. 2d 583 (1966) is inapplicable here, since in that case, the contractor-assignor, at the time of suit, was no longer indebted to the assignee, and the assignee released the assignment. Here, General Development is acknowledged to be indebted to plaintiff and there has been no assignment release. Similarly, Chattanooga Wheelbarrow Co. v. United States, Civil No. 4755 (E.D. Tenn., January 26, 1967; reh. denied, April 14, 1967), and McPhail v. United States, 149 Ct. ci. 179, 181 F. Suppl. 251 (1960), involved questions of assignment validity. Admittedly, there is no such issue in this case.

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