A-27841, JULY 12, 1929, 9 COMP. GEN. 12

A-27841: Jul 12, 1929

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THE BALANCE WILL BE DEDUCTED FROM ANY SUMS PAYABLE BY THE UNITED STATES TO THE BANK. WHEREIN THERE WAS DEDUCTED FROM A BALANCE OF $4. JACOB GROSSMAN WERE INDEBTED TO THE UNITED STATES IN THE RESPECTIVE SUMS OF $2. CHECKS WERE DRAWN BY THEM IN FAVOR OF THE UNITED STATES AND CERTIFIED BY THE COSMOPOLITAN TRUST CO. BEFORE THE CHECKS WERE PRESENTED BY THE UNITED STATES FOR PAYMENT THE DRAWEE BANK WAS CLOSED BY ORDER OF THE COMMISSIONER OF BANKS FOR MASSACHUSETTS AND PLACED IN THE HANDS OF A LIQUIDATING AGENT. ALSO THERE WAS DUE THE UNITED STATES SHIPPING BOARD THE SUM OF $1. THE BANK WAS CLOSED BEFORE THE CHECK WAS PRESENTED FOR PAYMENT AND DIVIDENDS AMOUNTING TO $761.40 APPEAR TO HAVE BEEN PAID THEREON.

A-27841, JULY 12, 1929, 9 COMP. GEN. 12

SET-OFF - INSOLVENT BANK INDEBTEDNESS TO THE UNITED STATES WHERE A BANK IN THE HANDS OF A LIQUIDATING AGENT HAS BEEN ABLE TO PAY ONLY A PART OF ITS INDEBTEDNESS TO THE UNITED STATES, THE BALANCE WILL BE DEDUCTED FROM ANY SUMS PAYABLE BY THE UNITED STATES TO THE BANK, ON THE AUTHORITY OF SECTION 236 OF THE REVISED STATUTES, AS AMENDED, AND THE ACT OF MARCH 3, 1875, 18 STAT. 481, AND ON THE EQUITABLE PRINCIPLE THAT IN GOOD CONSCIENCE ONE OUGHT NOT TO BE REQUIRED TO PAY A DEBT TO A CREDITOR IF HE CAN NOT ULTIMATELY REQUIRE THE CREDITOR TO PAY A DEBT DUE HIM.

DECISION BY COMPTROLLER GENERAL MCCARL, JULY 12, 1929:

REVIEW HAS BEEN REQUESTED OF SETTLEMENT NO. 0206162, DATED MAY 15, 1929, OF THIS OFFICE, WHEREIN THERE WAS DEDUCTED FROM A BALANCE OF $4,537.76, OTHERWISE DUE THE COSMOPOLITAN TRUST CO. AS REFUND OF INCOME TAXES, THE SUM OF $2,838.88 DUE THE UNITED STATES FROM SAID BANK.

IT APPEARS THAT THE HUB RAINCOAT CO. AND JACOB GROSSMAN WERE INDEBTED TO THE UNITED STATES IN THE RESPECTIVE SUMS OF $2,085.45 AND $669.20 ON ACCOUNT OF SUPPLIES AND MATERIALS PURCHASED FROM THE GOVERNMENT. CHECKS WERE DRAWN BY THEM IN FAVOR OF THE UNITED STATES AND CERTIFIED BY THE COSMOPOLITAN TRUST CO., BUT BEFORE THE CHECKS WERE PRESENTED BY THE UNITED STATES FOR PAYMENT THE DRAWEE BANK WAS CLOSED BY ORDER OF THE COMMISSIONER OF BANKS FOR MASSACHUSETTS AND PLACED IN THE HANDS OF A LIQUIDATING AGENT. SUBSEQUENTLY, THE UNITED STATES RECEIVED DIVIDENDS AS A CREDITOR OF THE BANK IN THE AMOUNTS OF $897.61 AND $254.76 ON THE ABOVE DESCRIBED CLAIMS, LEAVING THEREON A BALANCE DUE OF $1,185.84 AND $414.44 ON SAID CLAIMS, OR A TOTAL OF $1,600.28. ALSO THERE WAS DUE THE UNITED STATES SHIPPING BOARD THE SUM OF $1,238.60, WHICH REPRESENTED THE BALANCE DUE ON A CERTIFIED CHECK IN THE SUM OF $2,000 DRAWN ON JULY 28, 1920, ON THE COSMOPOLITAN TRUST CO. BY THE CHELSEA FOUNDRY CO. IN FAVOR OF ONE FRANK CROSS AND INDORSED BY HIM TO THE UNITED STATES SHIPPING BOARD. THE BANK WAS CLOSED BEFORE THE CHECK WAS PRESENTED FOR PAYMENT AND DIVIDENDS AMOUNTING TO $761.40 APPEAR TO HAVE BEEN PAID THEREON, LEAVING THE BALANCE OF $1,238.60, MAKING THE TOTAL INDEBTEDNESS TO THE UNITED STATES $2,838.88, AS DEDUCTED IN THE SETTLEMENT.

THERE HAS BEEN PRESENTED IN CONNECTION WITH THE REQUEST FOR REVIEW A COPY OF AN OPINION RENDERED IN UNITED STATES OF AMERICA V. COMMISSIONER OF STATE BANKS ET AL., 254 MASS. 173, WHEREIN THE COURT HELD, IN EFFECT, THAT THE UNITED STATES WAS NOT ENTITLED TO PRIORITY UNDER SECTION 3466, REVISED STATUTES, IN THE PAYMENT OF THESE CHECKS, AND IT SEEMS TO BE THE CONTENTION THAT THE NECESSARY EFFECT OF THE SETTLEMENT IN DEDUCTING THE AMOUNT DUE THE GOVERNMENT WAS TO SECURE PRIORITY IN PAYMENT OF THE GOVERNMENT'S CLAIMS; IN OTHER WORDS, THAT THE SAID DEDUCTION WAS BASED ON A CLAIMED RIGHT TO PRIORITY UNDER SECTION 3466, REVISED STATUTES. THIS IS NOT CORRECT. ALL CLAIMS AND DEMANDS IN WHICH THE UNITED STATES IS INTERESTED, WHETHER AS DEBTOR OR CREDITOR, ARE REQUIRED BY SECTION 236, REVISED STATUTES, AS AMENDED BY THE BUDGET AND ACCOUNTING ACT OF JUNE 10, 1921, 42 STAT. 24, TO BE SETTLED AND ADJUSTED IN THE GENERAL ACCOUNTING OFFICE, AND IT IS WELL ESTABLISHED THAT THE UNITED STATES HAS THE RIGHT IN SETTLING SUCH CLAIMS TO SET OFF AGAINST CREDITS ANY DEBITS IN ITS FAVOR. SEE ALSO, ACT OF MARCH 3, 1875, 18 STAT. 481, AND UNITED STATES V. LA GRANGE GROCERY COMPANY, 31 FED.REP./2D) 297; LABADIE V. UNITED STATES, 33 CT.CLS. 476; SCHOONER HENRY V. UNITED STATES, 35 ID. 394; TAGGART V. UNITED STATES, 17 CT.CLS. 323; UNITED STATES V. GRISWOLD, 30 FED.REP. 604; TELLER V. UNITED STATES, 113 ID. 463; UNITED STATES V. ENNIS, 132 ID. 133; AND WANNER V. WANNER, JR., INC., 30 ID. 376.

ASIDE FROM THE STATUTORY PROVISIONS HEREINBEFORE CITED THERE IS A PRINCIPLE STATED IN GEORGE D. HARTER BANK OF CANTON, OHIO, V. INGLIS, 6 FED.REP./2D) 841, CERTIORARI DENIED, 269 U.S. 576, THAT:

* * * ORDINARILY A BANK MAY SET OFF A DEPOSIT AGAINST A DEBT DUE IT FROM THE DEPOSITOR. WHERE INSOLVENCY HAS INTERVENED, EQUITY HAS EXTENDED THE RIGHT TO AN UNMATURED NOTE, UPON THE THEORY THAT IN GOOD CONSCIENCE ONE OUGHT NOT TO BE REQUIRED TO PAY A DEBT TO HIS CREDITOR IF HE CAN NOT ULTIMATELY COMPEL THE CREDITOR TO PAY A DEBT DUE HIM. LACLEDE BANK V. SCHULER, 120 U.S. 506. * *

UNQUESTIONABLY, THE COSMOPOLITAN TRUST CO. WAS INDEBTED TO THE UNITED STATES FOR THE ITEMS AGGREGATING $2,838.88 AS DEDUCTED IN THE SETTLEMENT FROM AN AMOUNT OTHERWISE DUE FROM THE GOVERNMENT. AND IN VIEW OF THE AUTHORITIES CITED, IT CAN NOT BE HELD BY THIS OFFICE THAT THE UNITED STATES IS REQUIRED TO PAY THE ENTIRE AMOUNT TO THE LIQUIDATING AGENT AND THEN TAKE ITS PRO RATA SHARE OF THE DIVIDENDS MADE POSSIBLE THEREBY. THE CONTRARY, IT MUST BE HELD THAT THE UNITED STATES, HAVING MONEY IN ITS HANDS TO THE EXTENT OF THE DEBTS DUE THE GOVERNMENT, MAY REFUSE TO PAY SUCH MONEY BOTH ON THE AUTHORITIES CITED AND "UPON THE THEORY THAT IN GOOD CONSCIENCE ONE OUGHT NOT TO BE REQUIRED TO PAY A DEBT DUE HIS CREDITOR IF HE CAN NOT ULTIMATELY COMPEL THE CREDITOR TO PAY A DEBT DUE HIM.'