#### GEORGE H. MICHEL, JOSEPH M. MICHEL, JACOB H. REICHERT, AND HARRY S. BITTING, PARTNERS, DOING BUSINESS AS THE PHILADELPHIA MECHANICAL AND ELECTRICAL SCHOOLS AND SHOPS, OF PHILADELPHIA, v. THE UNITED STATES

[No. E-259.

Decided March 29, 1926]

*On the Proofs*

*Contract; assignment; set-offs.*— In March, 1923, the plaintiffs acquired by assignment a contract with the Government expiring June 30, 1923, to perform vocational rehabilitation services. The services called for were, after the assignment, performed by the plaintiff assignees, for which performance they were underpaid by the Government. At the time of the assignment the Government had overpaid the assignor. On June 26, 1923, the plaintiffs entered into a contract with the Government for like services, terminating June 30, 1924. *Held,*that the plaintiffs are liable for the amount of the overpayment to the assignor and are entitled to recover the amount of the underpayment to themselves, plus the contract price of the services rendered upon their own contract.

*The Reporters*statement of the case:

*Mr. Charles H. Breckons*for the plaintiffs. *Mr. James A. Noecker*was on the brief.

*Mr. Heber H.*Rice, with whom was *Mr. Assistant Attorney General Herman J. Galloway,*for the defendant.

The court made special findings of fact, as follows:

I. The Philadelphia Mechanical and Electrical Schools and Shops, of Philadelphia, Pennsylvania, is a partnership composed of George H. Michel, Joseph M. Michel, Jacob H. Reichert, and Harry S. Bitting, having for its principal place of business the city of Philadelphia and State of Pennsylvania. The above-named George H. Michel and Joseph M. Michel having contributed the entire capital of the said partnership, the said partners by written agreement dated the 27th day of October, A. D. 1923, assigned and transferred to George H. Michel all the business and assets of said *994partnership as trustee as collateral security for the moneys advanced by said George Michel for the purpose of the schools purchased in the name of the said Philadelphia Mechanical and Electrical Schools and Shops. The said agreement is attached to the petition, marked “ Exhibit A,” and is made a part of these findings by reference.

II. On or about the 26th day of June, 1923, the plaintiffs entered into a contract with the United States Veterans’ Bureau whereby they agreed to furnish tuition and supplies to persons entitled to training under the vocational rehabilitation act, designated by the United States Veterans’ Bureau, upon the terms and conditions set forth in said contract, a copy of which is attached to the petition herein as Exhibit B and is made a part of these findings by reference.

III. The gross amount due the plaintiffs under said contract was and is $11,745.18. But prior to the making of said contract of June 26, 1923, the plaintiffs on or about March 15, 1923, contracted for the purchase of the business, good will, and equipment of the Philadelphia Mechanical and Electrical Schools and Shops (Inc.), a corporation which, prior to that date, was conducting said business and school. At the same time plaintiffs entered into an agreement with the said corporation for the right to use the name, or any part of the name, of said corporation as it desired, and also for the acquisition of the corporation’s interest in a contract with the Government, a copy of which, marked “ Exhibit E ” to the petition, is made a part of these findings by reference. Copies of said agreements of March 15, 1923, just referred to, are set forth in plaintiffs’ petition and are marked Exhibits C, D, and F, respectively, and made a part of these findings by reference. The beginning of the contract period in plaintiffs’ contract, Exhibit B aforesaid, was July 1, 1923, and was to extend to June 30, 1924.

IV. On or about March 15, 1923, a contract was executed between said corporation and the plaintiffs relative to the protection of the creditors of the corporation and the prevention of possible loss to plaintiffs in connection with said transaction. A true copy of this contract, marked “ Exhibit H,” is made an appendix to these findings. The plaintiffs *995notified the Government of the change of ownership of said schools by letter dated March 19, 1923, and received a reply thereto dated March 21, 1923; Copies of these letters appear in the appendix to these findings marked, respectively, “ Exhibit I ” and “ J.”

Y. On or about the 27th day of June, 1922, the said corporation had entered into a contract with the United States Veterans’ Bureau, a copy of which is attached as aforesaid to the petition, marked “ Exhibit E,” and is made a part of these findings by reference. Prior to the contract, Exhibit E, there were two other contracts, similar in character and terms, between the United States Veterans’ Bureau, on the one hand, and said corporation, or its immediate predecessor called the Philadelphia -Mechanical and Electrical Schools, on the other hand. The latter two concerns were one and the same and were owned and controlled by the same liar ties, engaged in the same business, and the change of the form of organization from a partnership to a corporation was effected by their own convenience and preference. These two last-named companies or concerns have been paid by the United States Veterans’ Bureau an amount of $11,-062.89 in excess of the amount that was rightfully due them under their several contracts, and said amount still remains due and unpaid by them to the Government. Of this last stated amount, the sum of $531.72 was an excess amount paid to the corporation by the Government upon the contract of June 27, 1922, being Exhibit E to the petition, as aforesaid.

VI. There was an overpayment to the amount of $531.72 by the Government to the said corporation prior to March 15, 1923, when the plaintiffs took over that corporation’s contract, this overpayment being caused by duplication of certain items and overcharges in the bills as presented. Of the plaintiffs’ claim herein the amount of $450.32 was a part of the amount due for services rendered by plaintiffs in May and June, 1923, under the said contract of the corporation which it had taken over as of March 15, 1923, and all of which was paid except that this amount of $450.32 has been withheld by the Government. The plaintiffs admit that *996certain overpayments were made to them under their contract of 1923 to the amount of $276.06.

The court decided that plaintiffs were entitled to recover $11,387.72, made up of $11,745.18 (Finding III) and $450.32 (Finding VI), less $276.06 (Finding VI) and $531.72 ( Finding VI).

Campbell, *Chief*Justice,

delivered the opinion of the court:

A contract was made June 26, 1923, between the United States Veterans’ Bureau and George H. Michel and others, partners under the firm name of the Philadelphia Mechanical and Electrical Schools and Shops, of Philadelphia, Pennsylvania, by which the latter agreed to furnish tuition and supplies to persons entitled thereto under the vocational rehabilitation act. The services were rendered and no question is raised as to the amount due the plaintiffs if that contract alone is to be considered. It appears, however, that prior to this contract there had been another one involving the same character of service, in which the contracting party was a corporation of the same name that plaintiffs’ partnership has, and this corporation’s contract was acquired by the plaintiffs in March, 1923, by assignment. By its terms it would expire on June 30, 1923. The services called for by this corporation contract were after the assignment rendered by the plaintiffs and payment was made for these services except a small balance of about $450 yet due. It developed that at the time of the assignment the Government had paid to the corporation a sum of $531.72 in excess of the amount properly due under the terms of the contract, and the question is whether this amount is deductible from the sum otherwise due the plaintiffs, a part of which sum is the small balance above mentioned, about $450.

The plaintiffs are claiming the benefits of the corporation’s contract from the date of its assignment to them until the time of its expiration. When they took it over the corporation had been overpaid, and in a final settlement the corporation would have to answer for this overpayment. The Government could accordingly have withheld the amount out of *997any moneys accruing or payable to the corporation. The plaintiffs as assignees took the contract subject to the equities existing between the corporation and the Government and growing out of the contract. See *Baker*v. *Wood,*157 U. S. 212-216. They could not acquire greater rights than their assignor had. See *Campbell*v. *Dist. Col.,*117 U. S. 615. The Government has not recognized the assignment as releasing the corporation from anything, but has made payments from time to time, at least nominally to the corporation, which the plaintiffs have received besides the small balance above mentioned arising out of services rendered by plaintiffs since the assignment. To the extent of the moneys thus arising out of the corporation’s contract which the plaintiffs have received they stand just where the corporation itself would have stood at the end of the contract period. We think, therefore, the plaintiffs must be held liable for the $531.72, but they will be entitled to receive, in addition to the amount due upon their own contract, the said balance of $450.32. Judgment should be rendered accordingly for the plaintiffs. And it is so ordered.

Graham, *Judge;*Hay, *Judge;*Downey, *Judge;*and Booth, Judge, concur.