A-19379, SEPTEMBER 18, 1928, 8 COMP. GEN. 130

A-19379: Sep 18, 1928

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DISBURSING OFFICERS - LIABILITY - PRIORITY OF DEBTS WHERE AN UNAUTHORIZED PAYMENT IS MADE FROM PUBLIC FUNDS THE RESPONSIBLE DISBURSING AGENT. IS FIRST TO BE LOOKED TO FOR PAYMENT TO THE UNITED STATES. MAY NOT BE CONTROLLED BY REGULATIONS OF THE DEPARTMENT UNDER WHICH THE DISBURSING OFFICER IS SERVING. THE ONE HAVING CONTROL OF SUCH ASSETS IS. A TRUSTEE FOR THE UNITED STATES UNTIL THE DEBTS DUE ARE SATISFIED. THERE IS NO OBLIGATION ON THE GOVERNMENT ACCOUNTING OFFICERS. OR OF ACCOUNTS IN WHICH THE UNITED STATES IS CONCERNED. WHEREIN AGGREGATE CREDITS HAVE BEEN DISALLOWED OF $12.59. IT APPEARS PRIVATES NICHOLS AND KENT EACH FRAUDULENTLY REENLISTED IN THE ARMY SUBSEQUENT TO THE ENLISTMENT IN WHICH THEY WERE SERVING WHEN OVERPAID BY MAJOR JACOBSON.

A-19379, SEPTEMBER 18, 1928, 8 COMP. GEN. 130

DISBURSING OFFICERS - LIABILITY - PRIORITY OF DEBTS WHERE AN UNAUTHORIZED PAYMENT IS MADE FROM PUBLIC FUNDS THE RESPONSIBLE DISBURSING AGENT, WITH HIS SURETY, IS FIRST TO BE LOOKED TO FOR PAYMENT TO THE UNITED STATES, THE MATTER BEING ONE OF THE FIDUCIARY FAILING TO ACCOUNT, TO THE EXTENT OF THE UNAUTHORIZED PAYMENT, FOR THE PUBLIC FUNDS ADVANCED TO HIM. THE ABSOLUTE LIABILITY OF A GOVERNMENT DISBURSING OFFICER, WITH HIS SURETY, MAY NOT BE CONTROLLED BY REGULATIONS OF THE DEPARTMENT UNDER WHICH THE DISBURSING OFFICER IS SERVING. NEITHER LOCAL LAWS OF A STATE, NOR ANY DEPARTMENT OR OFFICIAL OF THE UNITED STATES, BY REGULATION OR OTHERWISE, MAY CREATE PRIORITY, AS AGAINST THE UNITED STATES, IN FAVOR OF A DISBURSING AGENT OR OTHER CREDITOR OF A COMMON DEBTOR WITH RESPECT TO ASSETS OF THE DEBTOR IN PROCESS OF LIQUIDATION, AND THE ONE HAVING CONTROL OF SUCH ASSETS IS, IN THAT CONNECTION, A TRUSTEE FOR THE UNITED STATES UNTIL THE DEBTS DUE ARE SATISFIED, FAILURE ON HIS PART FIRST TO SATISFY THE DEBTS DUE THE UNITED STATES MAKING HIM LIABLE THEREFOR IN HIS OWN PERSON AND ESTATE. THERE IS NO OBLIGATION ON THE GOVERNMENT ACCOUNTING OFFICERS, IN THE SETTLEMENT OF CLAIMS AND DEMANDS BY THE UNITED STATES OR AGAINST IT, OR OF ACCOUNTS IN WHICH THE UNITED STATES IS CONCERNED, TO ASSIST A DISBURSING OFFICER IN RECOVERING UNAUTHORIZED PAYMENTS MADE BY HIM FROM PUBLIC FUNDS BY CREDITING IN HIS OFFICIAL ACCOUNTS AMOUNTS OTHERWISE ALLOWABLE TO THE SAME PAYEE, AND SUCH CREDIT IN FAVOR OF A DISBURSING OFFICER SHOULD NOT BE MADE WHERE THE INTERESTS OF THE UNITED STATES WOULD BE PREJUDICED THEREBY.

DECISION BY COMPTROLLER GENERAL MCCARL, SEPTEMBER 18, 1928:

THE ARMY FINANCE OFFICER AT FORT BENNING, GEORGIA, AS CUSTODIAN OF THE RETAINED DISBURSING RECORDS OF MAJ. BENJAMIN L. JACOBSON, F.D., UNITED STATES ARMY, HAS APPLIED FOR REVIEW OF SETTLEMENTS NOS. M-16749 W AND M- 20638-W, DATED DECEMBER 23, 1925, AND JUNE 28, 1926, RESPECTIVELY, WHEREIN AGGREGATE CREDITS HAVE BEEN DISALLOWED OF $12.59, REPRESENTING OVERPAYMENTS MADE BY MAJOR JACOBSON OF $6.30 TO PRIVATE JOHN W. NICHOLS, ON VOUCHER NO. 615, DECEMBER, 1923; OF $4.19 TO PRIVATE WILLIAM WHITSON ON VOUCHER NO. 29, MARCH, 1924; AND OF $2.10 TO PRIVATE ARTHUR S. KENT ON VOUCHER NO. 533, FEBRUARY, 1924.

IT APPEARS PRIVATES NICHOLS AND KENT EACH FRAUDULENTLY REENLISTED IN THE ARMY SUBSEQUENT TO THE ENLISTMENT IN WHICH THEY WERE SERVING WHEN OVERPAID BY MAJOR JACOBSON, NICHOLS HAVING BEEN DISCHARGED ON THE GROUND OF FRAUD AND KENT BEING A DESERTER AT LARGE FROM SUCH REENLISTMENTS; IT APPEARS ALSO THAT PRIVATE WHITSON DESERTED FROM THE ENLISTMENT IN WHICH HE WAS SERVING WHEN OVERPAID BY MAJOR JACOBSON AND AT THE TIME OF SUCH DESERTION THERE WAS BUT $2 DUE HIM FOR PAY WHEREAS HE OWED THE UNITED STATES $27.49 FOR CLOTHING.

THE QUESTIONS PRESENTED BY THE APPLICATION FOR REVIEW ARE (1) WHETHER THE $2 DUE WHITSON AT THE DATE OF HIS DESERTION MAY BE APPLIED TO THE CREDIT OF MAJOR JACOBSON AS A PARTIAL OFFSET TO THE $4.19 OVERPAYMENT MADE BY HIM, AND (2) WHETHER THERE MAY BE APPLIED FROM THE APPROPRIATIONS FOR PAY AND ALLOWANCES CURRENT DURING THE FRAUDULENT REENLISTMENTS OF NICHOLS AND KENT, ON THE THEORY OF ADVANCES OF PAY TO THAT EXTENT UNDER THOSE REENLISTMENTS, AMOUNTS SUFFICIENT TO COVER THE OVERPAYMENTS MADE TO THEM BY MAJOR JACOBSON IN THEIR PRIOR ENLISTMENTS.

THE CONTENTION IN THE APPLICATION FOR REVIEW APPEARS TO BE THAT A DISBURSING OFFICER WHO HAS MADE AN OVERPAYMENT FROM PUBLIC FUNDS HAS THE SAME RELATIVE STATUS TOWARD HIS DEBTOR AS EXISTS BETWEEN THE UNITED STATES AND ITS DEBTORS AND THAT WHERE THE SAME PERSON IS DEBTOR BOTH TO THE UNITED STATES AND TO A DISBURSING OFFICER, IN HIS OFFICIAL CAPACITY, THE MATTER OF PRIORITY IN HAVING THEIR DEBTS SATISFIED OUT OF ASSETS OF THE COMMON DEBTOR, AS BETWEEN THE UNITED STATES AND THE DISBURSING OFFICER, IS A MATTER SUBJECT TO BE CONTROLLED BY REGULATIONS OF THE DEPARTMENT UNDER WHICH THE DISBURSING OFFICER IS SERVING, THERE BEING CITED IN THIS CONNECTION ARMY REGULATIONS 35 2440.

AT THE OUTSET IT SEEMS NECESSARY TO EXPLODE A THEORY WHICH NOT ONLY IS THE BASIS OF THE PRESENT APPLICATION, BUT WHICH SEEMS RECENTLY TO HAVE BEEN ALL TOO GENERALLY ENTERTAINED AND ADVANCED ON BEHALF OF DISBURSING AGENTS OF THE GOVERNMENT, AND THAT IS, THAT WHEN AN OVERPAYMENT IS MADE FROM PUBLIC FUNDS BY SUCH A DISBURSING AGENT, THE PAYEE THEREOF, AND NOT THE DISBURSING AGENT RESPONSIBLE FOR SUCH OVERPAYMENT, IS FIRST TO BE LOOKED TO FOR PAYMENT TO THE UNITED STATES. THE FALLACY OF THIS VIEW RECENTLY HAS BEEN POINTED OUT IN SEVERAL DECISIONS OF THIS OFFICE AND IT SHOULD BE APPARENT THAT IN SUCH A SITUATION THE VERY NATURE OF THE DISBURSING OFFICER'S RELATIONSHIP AND THE NECESSITIES OF THE ACCOUNTING SYSTEM REQUIRE THAT THE DISBURSING OFFICER BE HELD LIABLE FOR HIS OVERPAYMENTS, BUT WHERE THE INTERESTS OF THE UNITED STATES REQUIRE, ASSISTANCE IS AFFORDED TO DISBURSING OFFICERS IN RECOVERING OVERPAYMENTS MADE BY THEM BY CREDITING AMOUNTS THAT ARE ALLOWABLE ON OTHER ACCOUNTS TO THE SAME PAYEE TO SATISFY A DEFICIENCY IN A DISBURSING ACCOUNT. 6 COMP. GEN. 404; 7 ID. 4; ID. 797; LETTER TO THE ATTORNEY GENERAL, OCTOBER 4, 1921, 2 MS. COMP. GEN. 137. THERE IS NO OBLIGATION ON THE ACCOUNTING OFFICERS, HOWEVER, TO MAKE SUCH AN ADJUSTMENT IN FAVOR OF THE DISBURSING AGENT AND IT SHOULD NOT BE MADE WHERE THE INTERESTS OF THE UNITED STATES MAY BE PREJUDICED THEREBY. SEE 7 COMP. GEN. 64.

THE SITUATION IS SIMPLY ONE IN WHICH THE UNITED STATES, THROUGH ITS ACCOUNTING OFFICERS, MAY HOLD THE DISBURSING OFFICER, WITH HIS SURETY, AND THE PAYEE JOINTLY AND SEVERALLY LIABLE AND MAY ACT AGAINST EITHER OR ALL AS DEBTOR TO THE UNITED STATES, AND THE LIABILITY OF THE DISBURSING OFFICER, OR OF HIS SURETY, IS NOT SUBJECT EITHER TO BE ENLARGED OR RESTRICTED IN THIS RESPECT BY REGULATIONS OF THE DEPARTMENT IN WHICH HE IS SERVING. MEADS V. UNITED STATES, (MICH. 1897) 81 FED.REP. 684, 26 C.C.A. 229.

ORDINARILY THE RIGHT OF THE UNITED STATES TO PRIORITY OF PAYMENT OF DEBTS DUE IT DOES NOT STAND UPON ANY SOVEREIGN PREROGATIVE, BUT IS EXCLUSIVELY FOUNDED ON THE ACTUAL PROVISIONS OF ITS STATUTES. UNITED STATES V. STATE BANK OF NORTH CAROLINA (1832), 31 U.S. (6 PET.) 29; 8 L.ED. 08; PEOPLES' NATIONAL BANK V. CORSE (1916), 102 S.W. 917, 133 TENN. 720. THE FIRST ENACTMENT ON THE SUBJECT IS IN THE DUTY COLLECTION ACT OF CONGRESS OF AUGUST 4, 1790, AND A HISTORY OF THIS AND SUBSEQUENT ENACTMENTS AND A COMPLETE ANNOTATION OF THE AUTHORITIES WILL BE FOUND IN THE NOTE TO THE CASE OF STATE V. FOSTER, 29 L.R.A. 226-250. THESE EARLIER STATUTES NOW HAVE BEEN REENACTED AND ARE IN FORCE AS SECTIONS 3466, 3467, AND 3468 OF THE REVISED STATUTES, SECTION 3467, PROVIDING AS FOLLOWS:

EVERY * * * PERSON, WHO PAYS ANY DEBT DUE BY THE PERSON OR ESTATE FROM WHOM OR FOR WHICH HE ACTS, BEFORE HE SATISFIES AND PAYS THE DEBTS DUE TO THE UNITED STATES FROM SUCH PERSON OR ESTATE, SHALL BECOME ANSWERABLE IN HIS OWN PERSON AND ESTATE FOR THE DEBTS SO DUE TO THE UNITED STATES, OR FOR SO MUCH THEREOF AS MAY REMAIN DUE AND UNPAID.

UNDER THIS STATUTE THE "PERSON," WHETHER AN OFFICER OF THE UNITED STATES OR IN WHATEVER CAPACITY HE MAY BE ACTING, HAVING ASSETS OF THE INSOLVENT DEBTOR UNDER HIS CONTROL, IS, WITH RESPECT TO SUCH ASSETS OF THE DEBTOR, A TRUSTEE FOR THE UNITED STATES UNTIL THE DEBTS DUE IT ARE SATISFIED. NEITHER LOCAL LAWS OF A STATE NOR ANY DEPARTMENT OR OFFICIAL OF THE UNITED STATES, BY REGULATION OR OTHERWISE, MAY CREATE PRIORITY IN FAVOR OF OTHER CREDITORS TO DEFEAT PRIORITY OF THE UNITED STATES. FIELD V. UNITED STATES (LA. 1835), 9 PET. 182, 200, 9 L.ED. 94; UNITED STATES V. OKLAHOMA (OKLA. 1923), 261 U.S. 253, 67 L.ED. 638; UNITED STATES V. DUNCAN (C.C.ILL. 1850), FED.CAS. NO. 15,003; IN RE GREGORY'S ESTATE, (PA. 1876) 2 WKLY. NOTES CAS. 430, 33 LEG.INT. 140. AND SEE THE CASE OF BRAMWELL V. UNITED STATES FIDELITY COMPANY, 269 U.S. 483, 490, WHERE THE COURT SAYS:

* * * THE PERSONS HELD ARE "EVERY EXECUTOR, ADMINISTRATOR, OR ASSIGNEE, OR OTHER PERSON.' THE GENERALITY OF THE LANGUAGE IS SIGNIFICANT. TAKEN TOGETHER, THESE SECTIONS MEAN THAT A DEBT DUE THE UNITED STATES IS REQUIRED FIRST TO BE SATISFIED WHEN THE POSSESSION AND CONTROL OF THE ESTATE OF THE INSOLVENT IS GIVEN TO ANY PERSON CHARGED WITH THE DUTY OF APPLYING IT TO THE PAYMENT OF THE DEBTS OF THE INSOLVENT, AS THE RIGHTS AND PRIORITIES OF CREDITORS MAY BE MADE TO APPEAR.

BUT INDEPENDENTLY OF THE STATUTORY PROVISIONS CITED AND THE JUDICIAL CONSTRUCTION THEREOF, THE SITUATION IS THAT THE PERSON (SOLDIER) IS BOTH DEBTOR AND CREDITOR OF THE UNITED STATES, AND IT IS BEING CONTENDED THAT BEFORE THE ACCOUNT OF SUCH PERSON WITH THE UNITED STATES MAY BE ADJUSTED AN OVERPAYMENT MADE TO SUCH PERSON BY A DISBURSING OFFICER AND DISALLOWED IN HIS ACCOUNTS MUST BE FIRST SATISFIED OUT OF THE CREDITS DUE SUCH PERSON, AND THAT IF THE CREDIT ITEMS ARE INSUFFICIENT TO LIQUIDATE BOTH THE CLAIMS OF THE UNITED STATES AND OF THE DISBURSING OFFICER THE UNITED STATES (NOT THE DISBURSING OFFICER WHO MADE AN OVERPAYMENT FOR WHICH HE IS LEGALLY LIABLE TO THE UNITED STATES) SHALL GO UNSATISFIED. THE DISBURSING OFFICER BEING LIABLE TO THE UNITED STATES FOR THE OVERPAYMENT, DEFERRING ITS CLAIM AGAINST THE CREDITS ACCRUING TO SUCH PERSON UNTIL THE OVERPAYMENT MADE BY THE DISBURSING OFFICER IS SATISFIED, IN EFFECT RELIEVES THE DISBURSING OFFICER OF HIS LIABILITY TO THE UNITED STATES FOR THE OVERPAYMENT, BUT THE FUNDS IN THE TREASURY REMAIN UNCHANGED. THE ADJUSTMENT ON SUCH BASIS LEAVES THE TOTAL DEBIT BALANCE THE SAME, BUT THE ADJUSTMENT RELIEVES THE DISBURSING OFFICER FROM HIS LIABILITY WITHOUT ANY BENEFIT TO THE UNITED STATES. IF SUCH WERE TRUE, THE DISBURSING OFFICER WOULD HAVE A PREFERENCE OVER THE UNITED STATES AS TO THE ASSETS OF SUCH PERSON UNDER THE CONTROL OF THE UNITED STATES. TO STATE SUCH A PROPOSITION IS TO REFUTE IT.

IF THE ARMY REGULATIONS, THEREFORE, SHOULD ASSERT THE EFFECT ATTRIBUTED IN THE APPLICATION FOR REVIEW TO REGULATIONS 35-2440, THEY NECESSARILY WOULD BE TREATED INEFFECTIVE TO CREATE A PRIORITY IN A DISBURSING OFFICER OR ANY OTHER PERSON SUPERIOR TO THE PRIORITY OF THE UNITED STATES. R.C.L. 1016, SEC. 5; 1 COMP. GEN. 347. AT MOST THE REGULATION HERE IN QUESTION MERELY STATES AN ACCOUNTING RULE BASED ON THE ACTION OF THE ACCOUNTING OFFICERS; THE RULINGS OF THOSE OFFICERS FIX THE PRIORITY, NOT THE REGULATIONS. IT IS CLEAR, HOWEVER, FROM AN EXAMINATION OF THE REGULATIONS CITED, THAT THEY ARE NOT INTENDED TO, AND DO NOT IN ANY WAY, INDICATE A PRIORITY IN A DISBURSING OFFICER SUPERIOR TO THAT OF THE UNITED STATES, BUT, ON THE CONTRARY, THEY EXPLICITLY PROVIDE FOR THE SATISFYING OF ALL INDEBTEDNESS IN ANY MANNER DUE THE UNITED STATES BEFORE THERE IS AUTHORIZED THE SATISFYING OF ANY DEBTS DUE A DISBURSING OFFICER, INDIVIDUAL, OR AGENCY, WHETHER IN PRIVATE OR OFFICIAL CAPACITY.

IN THE CASE OF PRIVATE WHITSON THERE WAS $2 DUE HIM FOR PAY AT THE TIME OF HIS DESERTION AND THERE WAS OWING BY HIM TO THE UNITED STATES $27.49 FOR CLOTHING, THUS LEAVING A NET BALANCE DUE THE UNITED STATES OF $25.49. CLEARLY THERE IS NOTHING, THEREFORE, WHICH MAY BE APPLIED TO THE CREDIT OF MAJOR JACOBSON ON THE $4.19 OVERPAYMENT MADE BY HIM TO WHITSON.

RESPECTING THE OVERPAYMENTS TO PRIVATES NICHOLS AND KENT, IT IS SETTLED THAT IN THE CASE OF A FRAUDULENT ENLISTMENT WHEN THE FRAUDULENT ENLISTMENT IS AVOIDED BY THE GOVERNMENT ON DISCOVERY OF THE FRAUD, SUCH ENLISTMENT IS VOID AB INITIO, AND NO PAY OR ALLOWANCES BECAME DUE UNDER SUCH FRAUDULENT ENLISTMENT, ALTHOUGH, AS A PRACTICAL MATTER AND FOR THE PROTECTION OF DISBURSING OFFICERS, AMOUNTS OTHERWISE PROPERLY PAID A MAN BEFORE DISCOVERY OF HIS FRAUDULENT ENLISTMENT ARE PASSED TO THE CREDIT OF THE DISBURSING OFFICER CONCERNED; ALSO, IN CERTAIN CASES OF THIS TYPE THERE HAVE BEEN ADJUSTMENTS BETWEEN THE PAY APPROPRIATION AND OTHER APPROPRIATIONS WHEN IT WAS MERELY A QUESTION WHICH OF TWO OR MORE APPROPRIATIONS SHOULD SUSTAIN A LOSS, AND THAT WAS THE SITUATION BEFORE THE COMPTROLLER IN 22 COMP. DEC. 538, CITED IN THE APPLICATION FOR REVIEW.

THERE IS NOTHING DUE WHICH MAY BE APPLIED TO THE CREDIT OF MAJOR JACOBSON ON THE OVERPAYMENTS HE MADE TO PRIVATES NICHOLS AND KENT.

THE SETTLEMENTS OF DECEMBER 23, 1925, AND JUNE 28, 1926, ARE CORRECT, AND MUST BE ADHERED TO. ..END :