A-19934, OCTOBER 3, 1927, 7 COMP. GEN. 253

A-19934: Oct 3, 1927

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AN AMOUNT EQUAL TO THE LOAN VALUE OF THE CERTIFICATE AT THE TIME THE LOAN WAS MADE. ALTHOUGH IN EXCESS OF THE LOAN VALUE WHEN THE LOAN WAS MADE. UPON A SATISFACTORY SHOWING THAT THE BANK ACTED IN GOOD FAITH AND WAS FREE FROM ANY COLLUSION OR INTENT TO LOAN AN AMOUNT IN EXCESS OF THAT AUTHORIZED UNDER THE LAW AND REGULATIONS APPLICABLE TO LOANS ON SUCH CERTIFICATES. AS FOLLOWS: A LARGE NUMBER OF NOTES HAVE BEEN SUBMITTED FOR REDEMPTION BY BANKS WHICH HAVE ERRONEOUSLY LOANED TO VETERANS ON THEIR NOTES SECURED BY ADJUSTED- SERVICE CERTIFICATES. THESE ERRORS WERE DUE LARGELY TO THE RUSH OF BUSINESS AND INEXPERIENCE OF THE BANKS IN DEALING WITH THE CERTIFICATES. WHERE LARGER AMOUNTS HAVE BEEN INVOLVED THE NOTES HAVE BEEN RETURNED TO THE BANKS WITH THE SUGGESTION THAT THEY COMMUNICATE WITH THE VETERANS CONCERNED AND SECURE SETTLEMENT FROM THEM.

A-19934, OCTOBER 3, 1927, 7 COMP. GEN. 253

VETERANS' BUREAU - ADJUSTED COMPENSATION - LOANS TO VETERANS WHERE A BANK MAKES A LOAN TO A VETERAN IN AMOUNT GREATER THAN THE THEN LOAN VALUE OF HIS ADJUSTED SERVICE CERTIFICATE, AND THE NOTE REMAINS UNPAID BY THE VETERAN AT MATURITY, THE VETERANS' BUREAU MAY PAY TO THE BANK, UPON PROPER PRESENTATION OF THE NOTE AND CERTIFICATE, AN AMOUNT EQUAL TO THE LOAN VALUE OF THE CERTIFICATE AT THE TIME THE LOAN WAS MADE, WITH INTEREST ON THAT AMOUNT. IF THE BANK PREFERS TO HOLD THE NOTE AND CERTIFICATE AFTER MATURITY OF THE NOTE, AND AT THE TIME OF PRESENTATION BY AND PAYMENT TO THE BANK, WHENEVER THAT MAY BE, THE THEN LOAN VALUE OF THE CERTIFICATE EQUALS OR EXCEEDS THE PRINCIPAL OF THE LOAN, ALTHOUGH IN EXCESS OF THE LOAN VALUE WHEN THE LOAN WAS MADE, PLUS ACCRUED INTEREST THEREON, THE BANK MAY BE PAID THE AMOUNT DUE AND THE SAME CHARGED AGAINST THE CERTIFICATE AS PROVIDED FOR UNDER THE STATUTE, UPON A SATISFACTORY SHOWING THAT THE BANK ACTED IN GOOD FAITH AND WAS FREE FROM ANY COLLUSION OR INTENT TO LOAN AN AMOUNT IN EXCESS OF THAT AUTHORIZED UNDER THE LAW AND REGULATIONS APPLICABLE TO LOANS ON SUCH CERTIFICATES.

COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, OCTOBER 3, 1927:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER OF SEPTEMBER 15, 1927, AS FOLLOWS:

A LARGE NUMBER OF NOTES HAVE BEEN SUBMITTED FOR REDEMPTION BY BANKS WHICH HAVE ERRONEOUSLY LOANED TO VETERANS ON THEIR NOTES SECURED BY ADJUSTED- SERVICE CERTIFICATES, AMOUNTS EXCEEDING THE LOAN VALUE OF SUCH CERTIFICATES. THESE ERRORS WERE DUE LARGELY TO THE RUSH OF BUSINESS AND INEXPERIENCE OF THE BANKS IN DEALING WITH THE CERTIFICATES, WHEN MANY CERTIFICATES IN JANUARY AND FEBRUARY OF THIS YEAR BECAME ELIGIBLE FOR LOANS.

IT HAS BEEN THE CUSTOM OF THE BUREAU TO IGNORE AMOUNTS OF TEN CENTS OR LESS IN EXCESS OF THE LOAN VALUE, BUT WHERE LARGER AMOUNTS HAVE BEEN INVOLVED THE NOTES HAVE BEEN RETURNED TO THE BANKS WITH THE SUGGESTION THAT THEY COMMUNICATE WITH THE VETERANS CONCERNED AND SECURE SETTLEMENT FROM THEM, OBTAINING, IF NECESSARY, NEW NOTES FOR THE PROPER AMOUNT. BUT IN MANY CASES WHEN THE BANKS HAVE ATTEMPTED SUCH COMMUNICATION WITH THE VETERANS THEY HAVE BEEN UNABLE TO LOCATE THEM, AND FREQUENTLY THE BANKS ARE WILLING TO ACCEPT SETTLEMENT ON THE BASIS OF THE AMOUNT THAT MIGHT HAVE BEEN LOANED WHICH IS LESS THAN THE FACE AMOUNT OF THE VETERAN'S NOTE.

IN THESE CASES IT MAY APPEAR DESIRABLE TO MAKE SETTLEMENT WITH THE BANKS ON THE BASIS OF THE TRUE LOAN VALUE, AS IT IS BELIEVED THAT THE BUREAU SHOULD AVOID REJECTION OF THESE NOTES ON TECHNICAL GROUNDS IF THAT IS POSSIBLE.

HOWEVER, DUE TO THE FACT THAT SUCH LOANS ARE IN EXCESS OF THE LOAN VALUE OF THE CERTIFICATES, IT IS POSSIBLE THAT THEY MUST BE CONSIDERED TO BE VOID UNDER THE TERMS OF SECTION 503 OF THE WORLD WAR ADJUSTED COMPENSATION ACT AS AMENDED, WHICH PROVIDES IN PART AS FOLLOWS:

"* * * ANY NEGOTIATION, ASSIGNMENT, OR LOAN MADE IN VIOLATION OF ANY PROVISION OF THIS SECTION SHALL BE HELD VOID.'

THE FOLLOWING QUESTION IS THEREFORE PRESENTED: IF A BANK MAKES A LOAN TO A VETERAN IN AMOUNT GREATER THAN THE THEN LOAN VALUE OF HIS ADJUSTED- SERVICE CERTIFICATE, GIVEN AS SECURITY FOR HIS PROMISSORY NOTE, AND THE NOTE REMAINS UNPAID BY THE VETERAN AT MATURITY, MAY THE BUREAU REDEEM SUCH NOTE UPON PROPER PRESENTATION BY THE BANK, PAYING THE BANK ONLY AN AMOUNT EQUAL TO THE LOAN VALUE OF THE CERTIFICATE AT THE TIME THE LOAN WAS MADE, WITH INTEREST ON THAT AMOUNT, OR MUST THE BUREAU REJECT SUCH NOTES?

AS A COROLLARY TO THIS QUESTION, MAY THE BANK HOLD THE NOTE UNTIL THE LOAN VALUE OF THE CERTIFICATE IS SUFFICIENT TO COVER THE AMOUNT ORIGINALLY LOANED AND THEN PRESENT THE NOTE FOR REDEMPTION?

SECTION 502 (B) OF THE WORLD WAR ADJUSTED COMPENSATION ACT OF MAY 19, 1924, 43 STAT. 126, AUTHORIZES LOANS IN "ANY AMOUNT NOT IN EXCESS OF THE LOAN BASIS (AS DEFINED IN SUBDIVISION (G) OF THIS SECTION) OF THE CERTIFICATE.' IT IS OBVIOUS THEREFORE THAT NO GREATER AMOUNT MAY BE PAID TO A BANK THAN IS AUTHORIZED TO BE LOANED ON THE BASIS OF THE CERTIFICATE. THAT IS, THE ERROR OF A VETERAN, A BANK, OR GOVERNMENT OFFICIALS IN NEGOTIATING A LOAN IN EXCESS OF THE LOAN VALUE MAY NEVER OBLIGATE THE GOVERNMENT TO PAY A GREATER AMOUNT THAN IS ACTUALLY SECURED BY THE CERTIFICATE. BUT IT IS NOT BELIEVED THAT A LOAN--- OTHERWISE PROPER AND NOT TAINTED WITH FRAUD--- IN EXCESS OF THE LOAN VALUE OF THE CERTIFICATE, NEGOTIATED THROUGH ERROR OR MISTAKE OF LAW, NECESSARILY INVALIDATES THE LOAN IN TOTO. ONLY THE EXCESS AMOUNT WOULD BE A "LOAN MADE IN VIOLATION" OF THE CONTROLLING STATUTE, SECTION 503. THE FIRST PART OF THE FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE AND THE SECOND PART IN THE NEGATIVE.

WITH RESPECT TO THE SECOND QUESTION SECTION 502 (C) OF THE STATUTE PLACES NO LIMIT OF TIME AFTER THE FIRST SIX MONTHS WITHIN WHICH A BANK MAY PRESENT A NOTE FOR REDEMPTION. IN FACT, IT IS EXPRESSLY PROVIDED THAT THE BANK MAY PRESENT THE NOTE AND CERTIFICATE TO THE DIRECTOR "AT ANY TIME AFTER MATURITY OF THE LOAN BUT NOT BEFORE THE EXPIRATION OF SIX MONTHS AFTER THE LOAN WAS MADE.' DURING THE PERIOD THE NOTE AND CERTIFICATE ARE HELD BY THE BANK INTEREST, IF ANY, RUNS AT THE RATE FIXED IN THE NOTE. IS NOT UNTIL THE NOTE AND CERTIFICATE ARE PRESENTED BY THE BANK AND THE BANK IS PAID BY THE GOVERNMENT THAT A CHARGE AGAINST THE CERTIFICATE IS REQUIRED. IF, AT THE TIME OF PRESENTATION BY AND PAYMENT TO A BANK, WHENEVER IT MAY BE, THE THEN LOAN VALUE OF THE CERTIFICATE EQUALS OR EXCEEDS THE PRINCIPAL OF THE LOAN, ALTHOUGH IN EXCESS OF THE LOAN VALUE WHEN THE LOAN WAS MADE, PLUS ACCRUED INTEREST THEREON, THE BANK MAY BE PAID THE AMOUNT DUE AND THE SAME CHARGED AGAINST THE CERTIFICATE AS PROVIDED FOR UNDER THE STATUTE, PROVIDED THERE IS A SATISFACTORY SHOWING THAT THE BANK ACTED IN GOOD FAITH AND WAS FREE FROM ANY COLLUSION OR INTENT TO LOAN AN AMOUNT IN EXCESS OF THAT AUTHORIZED UNDER THE LAW AND REGULATIONS APPLICABLE TO LOAN ON SUCH CERTIFICATES. IN OTHER WORDS, THIS PROCEDURE SHOULD BE FOLLOWED, IN ORDER TO PROTECT THE BANK FROM LOSS, ONLY WHEN AN EXCESS LOAN HAS BEEN MADE AS THE RESULT OF A BONA FIDE ERROR OR MISTAKE OF LAW, AND IN THE ABSENCE OF FRAUD OR COLLUSION. THE RULE SHOULD NOT BE APPLIED SO AS TO AUTHORIZE A VETERAN TO ANTICIPATE A FUTURE LOAN VALUE OF THE CERTIFICATE ENABLING HIM KNOWINGLY TO OBTAIN A GREATER LOAN THAN IS THEN SECURED BY THE CERTIFICATE.