Central Bank v. United States, 345 U.S. 639 (1953)

CERTIORARI TO THE UNITED STATES COURT OF CLAIMS

Syllabus

Pursuant to the Assignment of Claims Act of 1940, a government contractor in 1945 assigned to a bank the proceeds of its contract with the Navy. As authorized by the Act, the contract provided that payments to the assignee should not be subject to setoff for any indebtedness of the contractor arising independently of the contract. The contractor failed to pay over federal income and social security taxes withheld by it from the wages of its employees performing work under the contract.

Held: within the meaning of the Act, the contractor’s tax indebtedness arose "independently of" the contract, and could not be set off against money owed by the Government on the contract to the assignee. Pp. 640-647.

(a) The contractor’s tax indebtedness was imposed by §§ 1401 and 1622 of the Internal Revenue Code. It was thus an indebtedness "arising independently of" the contract within the meaning of the Assignment of Claims Act of 1940. Pp. 645-646.

(b) To permit the Government to set off the tax indebtedness against the amount due under the contract in the circumstances of this case would defeat the purpose of the Assignment of Claims Act of 1940 to encourage the private financing of government contracts. Pp. 646-647.

123 Ct.Cl. 237, 105 F.Supp. 992, reversed.

The Court of Claims denied a claim by a bank as assignee of the proceeds of a Navy contract on the ground that the Government was entitled to set off the contractor’s tax indebtedness against the amount due under the contract. 123 Ct.Cl. 237, 105 F.Supp. 992. This Court granted certiorari. 345 U.S. 903. Reversed, p. 647.