A-71842, MARCH 25, 1936, 15 COMP. GEN. 847

A-71842: Mar 25, 1936

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

INTEREST - ADJUSTED COMPENSATION CERTIFICATES - LOANS BY BANKS OR TRUST COMPANIES THERE IS NO AUTHORITY FOR PAYMENT OF INTEREST TO DATE OF MATURITY ON UNPAID LOANS TO VETERANS BY BANKS OR TRUST COMPANIES ON WORLD WAR ADJUSTED -SERVICE CERTIFICATES. TO 15 DAYS AFTER THE MAILING OF SUCH NOTICE WHERE PRESENTATION FOR PAYMENT IS NOT SO MADE. 1936: THERE HAVE BEEN CONSIDERED THE MATTERS PRESENTED IN YOUR LETTER OF MARCH 2. THEN THE ADMINISTRATOR SHALL (1) PAY OR DISCHARGE SUCH UNPAID PRINCIPAL AND INTEREST AS IS NECESSARY TO MAKE THE CERTIFICATE AVAILABLE FOR PAYMENT UNDER THIS ACT. WOULD BE CHARGED AGAINST THE FACE VALUE OF SUCH CERTIFICATE SHALL BE CANCELED INSOFAR AS THE VETERAN IS CONCERNED.

A-71842, MARCH 25, 1936, 15 COMP. GEN. 847

INTEREST - ADJUSTED COMPENSATION CERTIFICATES - LOANS BY BANKS OR TRUST COMPANIES THERE IS NO AUTHORITY FOR PAYMENT OF INTEREST TO DATE OF MATURITY ON UNPAID LOANS TO VETERANS BY BANKS OR TRUST COMPANIES ON WORLD WAR ADJUSTED -SERVICE CERTIFICATES, THE PAYMENT OF INTEREST BEING LIMITED UNDER SECTION 2 OF THE ACT OF JANUARY 27, 1936, 49 STAT. 1100, TO THE DATE OF ISSUANCE OF THE CHECK BY THE VETERANS' ADMINISTRATION IN REDEMPTION OF SAID LOAN WHERE THE BANK OR TRUST COMPANY PRESENTS THE CERTIFICATE AND UNPAID NOTE FOR PAYMENT WITHIN 15 DAYS AFTER THE MAILING OF THE REQUIRED NOTICE BY THE VETERANS' ADMINISTRATION, AND TO 15 DAYS AFTER THE MAILING OF SUCH NOTICE WHERE PRESENTATION FOR PAYMENT IS NOT SO MADE.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, MARCH 25, 1936:

THERE HAVE BEEN CONSIDERED THE MATTERS PRESENTED IN YOUR LETTER OF MARCH 2, 1936, AS FOLLOWS:

IN CONNECTION WITH SETTLEMENT OF THE WORLD WAR ADJUSTED SERVICE CERTIFICATES PURSUANT TO PUBLIC, NO. 425, 74TH CONGRESS, ENACTED JANUARY 27, 1936, A QUESTION HAS ARISEN AS TO THE EXTENT OF THE OBLIGATION OF THIS ADMINISTRATION TO PAY INTEREST ON THE LOANS MADE TO VETERANS BY BANKS UNDER AUTHORITY OF SECTION 502 OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED. PUBLIC, NO. 425, SUPRA, PROVIDES IN THIS REGARD:

"* * * THE PAYMENT IN EACH CASE SHALL BE IN AN AMOUNT EQUAL TO THE FACE VALUE OF THE CERTIFICATE, EXCEPT THAT IF, AT THE TIME OF APPLICATION FOR PAYMENT UNDER THIS ACT, THE PRINCIPAL AND UNPAID INTEREST ACCRUED PRIOR TO OCTOBER 1, 1931, WITH RESPECT TO ANY LOAN UPON ANY SUCH CERTIFICATE HAS NOT BEEN PAID IN FULL BY THE VETERAN (WHETHER OR NOT THE LOAN HAS MATURED), THEN THE ADMINISTRATOR SHALL (1) PAY OR DISCHARGE SUCH UNPAID PRINCIPAL AND INTEREST AS IS NECESSARY TO MAKE THE CERTIFICATE AVAILABLE FOR PAYMENT UNDER THIS ACT, (2) DEDUCT SUCH UNPAID PRINCIPAL AND SO MUCH OF SUCH UNPAID INTEREST AS ACCRUED PRIOR TO OCTOBER 1, 1931, FROM THE AMOUNT OF THE FACE VALUE OF THE CERTIFICATE, AND (3) CERTIFY TO THE SECRETARY OF THE TREASURY AS PAYABLE AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE FACE VALUE OF THE CERTIFICATE AND THE AMOUNT SO DEDUCTED.

"SEC. 2. IN THE CASE OF EACH LOAN HERETOFORE MADE PURSUANT TO LAW BY THE ADMINISTRATOR OF VETERANS' AFFAIRS AND/OR BY ANY NATIONAL BANK, OR ANY BANK OR TRUST COMPANY INCORPORATED UNDER THE LAWS OF ANY STATE, TERRITORY, POSSESSION, OR THE DISTRICT OF COLUMBIA, UPON THE SECURITY OF AN ADJUSTED- SERVICE CERTIFICATE, ANY INTEREST UNPAID ACCRUED SUBSEQUENT TO SEPTEMBER 30, 1931, THAT HAS BEEN OR, IN CONSEQUENCE OF EXISTING LAW, WOULD BE CHARGED AGAINST THE FACE VALUE OF SUCH CERTIFICATE SHALL BE CANCELED INSOFAR AS THE VETERAN IS CONCERNED, NOTWITHSTANDING ANY PROVISION OF LAW TO THE CONTRARY. ANY INTEREST ON ANY SUCH LOAN PAYABLE TO ANY SUCH BANK OR TRUST COMPANY SHALL BE PAID BY THE ADMINISTRATOR OF VETERANS' AFFAIRS.

"IN THE CASE OF ANY SUCH LOAN WHICH IS UNPAID AND HELD BY A BANK OR TRUST COMPANY AT THE TIME OF FILING AN APPLICATION UNDER THIS ACT, THE BANK OR TRUST COMPANY HOLDING THE NOTE AND CERTIFICATE SHALL, UPON NOTICE FROM THE ADMINISTRATOR OF VETERANS' AFFAIRS, PRESENT THEM TO THE ADMINISTRATOR FOR PAYMENT TO THE BANK OR TRUST COMPANY IN FULL SATISFACTION OF ITS CLAIM FOR THE AMOUNT OF UNPAID PRINCIPAL AND UNPAID INTEREST, EXCEPT THAT IF THE BANK OR TRUST COMPANY, AFTER SUCH NOTICE, FAILS TO PRESENT THE CERTIFICATE AND NOTE TO THE ADMINISTRATOR WITHIN FIFTEEN DAYS AFTER THE MAILING OF THE NOTICE, SUCH INTEREST SHALL BE PAID ONLY UP TO THE FIFTEENTH DAY AFTER THE MAILING OF SUCH NOTICE.'

IT WILL BE NOTED THAT, AS QUOTED ABOVE, IT IS PROVIDED IN THE FIRST SECTION OF THE STATUTE THAT THIS ADMINISTRATION SHALL PAY OR DISCHARGE SUCH UNPAID PRINCIPAL AND INTEREST AS IS NECESSARY TO MAKE THE CERTIFICATE AVAILABLE FOR PAYMENT UNDER THIS ACT. THIS LANGUAGE FOLLOWS THAT OF PUBLIC, NO. 743, 71ST CONGRESS (46 STAT. 1429), ENACTED FEBRUARY 27, 1931, WHICH INCREASED THE LOAN BASIS ON ADJUSTED SERVICE CERTIFICATES TO NOT LESS THAN 50 PERCENTUM OF THE FACE VALUE OF THE CERTIFICATES, AND PROVIDED THAT IF AT THE TIME OF APPLICATION TO THIS ADMINISTRATION FOR A LOAN THE PRINCIPAL AND INTEREST ON OR IN RESPECT OF ANY PRIOR LOAN UNDER SECTION 502, SUPRA, HAD NOT BEEN PAID IN FULL BY THE VETERAN (WHETHER OR NOT THE LOAN HAS MATURED), THEN, ON REQUEST OF THE VETERAN, THIS ADMINISTRATION WAS DIRECTED TO "* * * PAY OR OTHERWISE DISCHARGE SUCH UNPAID PRINCIPAL AND SO MUCH OF SUCH UNPAID INTEREST (ACCRUED OR TO ACCRUE) AS IS NECESSARY TO MAKE THE CERTIFICATE AVAILABLE FOR USE AS SECURITY FOR THE NEW LOAN * *

THE REGULATIONS OF THE THEN U.S. VETERANS' BUREAU PROVIDED THAT:

"IT WILL BE THE POLICY OF THE BUREAU TO REDEEM ALL LOANS MADE IN ACCORDANCE WITH THE LAW AND REGULATIONS MADE PURSUANT THERETO, WHEN SUCH LOANS ARE MADE IN GOOD FAITH TO THE VETERAN TO WHOM THE CERTIFICATE WAS ISSUED. IF, WHILE HIS CERTIFICATE IS HELD BY A BANK AS SECURITY FOR A LOAN, THE VETERAN APPLIES FOR THE INCREASED LOAN VALUE AUTHORIZED BY THE AMENDMENT TO THE WORLD WAR ADJUSTED COMPENSATION ACT DATED FEBRUARY 27, 1931, WHETHER OR NOT THE LOAN HAS MATURED, THE VETERAN AND THE BANK WILL BE INFORMED FULLY OF THE PROVISIONS OF THIS SECTION AND THAT THE BANK MAY MAKE THE LOAN FOR THE ADDITIONAL AMOUNT OR, UPON REQUEST OF THE VETERAN, MAY SEND THE NOTE AND CERTIFICATE TO THE DIRECTOR OF THE BUREAU. THE DIRECTOR SHALL, IF THE LOAN WAS LEGALLY MADE, ACCEPT SUCH CERTIFICATE AND NOTE, AND PAY TO THE BANK IN FULL SATISFACTION OF ITS CLAIM THE AMOUNT OF THE UNPAID PRINCIPAL DUE IT AND THE UNPAID INTEREST AT THE RATE FIXED IN THE NOTE, UP TO THE DATE OF THE CHECK ISSUED TO THE BANK, OR UP TO THE DATE OF MATURITY OF THE LOAN, WHICHEVER IS THE LATER DATE. IF THE LOAN HAS NOT MATURED THE BANK MAY WAIVE ITS RIGHT TO INTEREST UP TO DATE OF MATURITY OR ANY PORTION OF SUCH INTEREST" (PARAGRAPH R-4683, REGULATIONS AND PROCEDURE).

THERE IS NO RECORD IN THIS ADMINISTRATION OF ANY BANK UPON SURRENDER OF AN UNMATURED NOTE HAVING DEMANDED THE PAYMENT OF UNACCRUED INTEREST FOR THE REMAINDER OF THE TERM OF THE LOAN UNDER THIS PROVISION OF LAW AND REGULATIONS, BUT, OF COURSE, THE BANKS WERE AUTHORIZED TO MAKE LOANS ON THE NEW LOAN BASIS AND IN ANY EVENT THE STATUTE THEN PROVIDED THAT ANY AND ALL INTEREST PAID TO BANKS BY THIS ADMINISTRATION SHOULD BE DEDUCTED FROM THE THEN EXISTING LOAN BASIS OF THE VETERANS' CERTIFICATES, WHEREAS UNDER THE TERMS OF SECTION 2 OF THE PRESENT LAW, ANY INTEREST ON ANY LOAN PAYABLE TO ANY BANK SHALL BE PAID TO SUCH BANK, BUT UNPAID INTEREST ACCRUED SUBSEQUENT TO SEPTEMBER 30, 1931, THAT HAS BEEN OR, IN CONSEQUENCE OF EXISTING LAW, WOULD BE CHARGED AGAINST THE FACE VALUE OF THE CERTIFICATE SHALL BE CANCELLED IN SO FAR AS THE VETERANS ARE CONCERNED, NOTWITHSTANDING ANY PROVISION OF LAW TO THE CONTRARY.

ONE SUCH BANK, THE FIRST NATIONAL BANK OF ST. PAUL, MINNESOTA, HAS BEEN ADVISED BY ITS COUNSEL, MESSRS. KELLOGG, MORGAN, CHASE, CARTER AND HEADLEY, OF THAT CITY, THAT UPON SURRENDER TO THIS ADMINISTRATION OF UNMATURED NOTES EXECUTED BY VETERANS UPON THE SECURITY OF THEIR ADJUSTED SERVICE CERTIFICATES, SETTLEMENT SHOULD BE MADE NOT ONLY OF THE UNPAID PRINCIPAL AND ACCRUED INTEREST TO THE DATE OF PAYMENT BY THIS ADMINISTRATION, BUT ALSO OF THE UNACCRUED INTEREST FROM THE DATE OF SUCH PAYMENT TO THE DATE OF THE MATURITY OF THE NOTES. A COPY OF THE BANK'S LETTER IS ENCLOSED AS WELL AS A COPY OF THE ATTORNEYS' BRIEF AND A SPECIMEN OF THE NOTES REFERRED TO. IN EXPLANATION, IT MAY BE STATED THAT NO FORMAL INSTRUCTIONS HAVE BEEN ISSUED ON THE SUBJECT OF THE PAYMENT OF INTEREST AND THIS QUESTION HAS NOT BEEN DETERMINED ADVERSELY TO THE INTERESTS OF THE BANK AS IS INDICATED IN THE BRIEF.

IT IS CONTENDED BY THE BANK THAT THIS IS SUBSTANTIALLY THE SAME QUESTION AS AROSE UNDER PUBLIC, NO. 303, 72D CONGRESS (47 STAT. 724), APPROVED JULY 21, 1932, WHICH SUBSTITUTED 3 1/2 PERCENT INTEREST FOR THE RATES FIXED IN SECTION 502 OF THE WORLD WAR ADJUSTED COMPENSATION ACT, SUPRA, AND WHICH PROVIDED THAT SUCH SUBSTITUTION "SHALL NOT APPLY WITH RESPECT TO INTEREST ACCRUED PRIOR TO THE DATE OF THE ENACTMENT OF THIS ACT.'

UPON RECONSIDERATION YOU ADVISED ME ON FEBRUARY 6, 1933 (A-44189), THAT WHERE THE NOTES WERE IN FULL FORCE AND EFFECT ON THE DATE OF THE PASSAGE OF THE ACT THERE WAS INVOLVED A SPECIFIC CONTRACTUAL OBLIGATION ASSUMED BY THE VETERAN WHICH UNDER THE ACT WAS TAKEN OVER BY THE GOVERNMENT, AND THAT:

"AS TO SUCH CASES, THEREFORE, THE RATE OF INTEREST PROVIDED FOR IN THE NOTE MAY BE PAID BY THE GOVERNMENT IN CASES WHERE THE GOVERNMENT TAKES OVER THE OBLIGATION UNTIL ITS MATURITY, * * *" (12 COMP. GEN. 522, 526).

YOUR ADVICE IS NOW REQUESTED AS TO THE METHOD TO BE ADOPTED BY THIS ADMINISTRATION IN THOSE CASES PRESENTED FOR SETTLEMENT UNDER PUBLIC, NO. 425, SUPRA, IN WHICH THERE ARE OUTSTANDING UNMATURED LOANS MADE BY A BANK OR TRUST COMPANY UNDER SECTION 502 OF THE WORLD WAR ADJUSTED COMPENSATION ACT, SUPRA, AND IN WHICH THE CERTIFICATES AND NOTES ARE TIMELY PRESENTED BY THE NOTE HOLDERS FOR PAYMENT, INCLUDING A CLAIM FOR SETTLEMENT OF THE INTEREST TO ACCRUE TO THE DATE OF THE MATURITY OF SUCH LOANS.

THE BRIEF ON BEHALF OF THE FIRST NATIONAL BANK OF ST. PAUL, MINN., THAT A BANK OR TRUST COMPANY SHOULD BE PAID INTEREST ON LOANS SECURED BY ADJUSTED SERVICE CERTIFICATES TO THE DATE OF MATURITY OF THE LOANS, NOTWITHSTANDING PRIOR PAYMENT OF THE PRINCIPAL, SUBMITS THAT---

THE CONGRESS CANNOT THUS DEPRIVE THE BANK OF A SUBSTANTIAL RIGHT UNDER ITS CONTRACT EITHER WITH THE VETERAN OR WITH THE UNITED STATES, FOR SUCH ACTION WOULD, THROUGH IMPAIRING THE OBLIGATION OF THE CONTRACT, CONSTITUTE A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW OR WOULD INVOLVE THE TAKING OF PRIVATE PROPERTY, I.E., THE CONTRACTUAL RIGHTS OF THE BANK, FOR PUBLIC USE WITHOUT JUST COMPENSATION; AND VIEWED IN EITHER LIGHT, THE ACTION IS PROHIBITED BY THE PROVISIONS OF THE FIFTH AMENDMENT TO THE CONSTITUTION.

THERE CAN BE NO DOUBT THAT THE CONSTITUTIONAL PROHIBITIONS AGAINST THE IMPAIRMENT OF THE PROVISIONS OF A CONTRACT WHICH ARE SPECIFICALLY APPLIED TO THE STATES BY THE FOURTEENTH AMENDMENT ARE LIKEWISE APPLICABLE TO THE CONGRESS OF THE UNITED STATES UNDER THE DUE PROCESS CLAUSE OF THE FIFTH AMENDMENT. WHATEVER DOUBT ON THIS POINT MAY HAVE FORMERLY EXISTED HAS BEEN SET AT REST BY THE WAR RISK INSURANCE CASES (LYNCH V. UNITED STATES, 292 U.S. 571, AND WILNER V. UNITED STATES, 292 U.S. 571) AND PERRY V. UNITED STATES, 294 U.S. 330 (ONE OF THE GOLD CLAUSE CASES). THE ONLY LIMITATIONS UPON THIS PRINCIPLE ARE (A) THAT AN IMPAIRMENT OR DESTRUCTION OF A CONTRACT IS NOT FORBIDDEN TO CONGRESS AS A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW IF IT IS THE COLLATERAL OR INCIDENTAL RESULT OF THE EXERCISE BY CONGRESS OF ONE OF THE POWERS CONFERRED UPON IT BY THE CONSTITUTION, SUCH, FOR EXAMPLE, AS THE WAR POWER OR THE POWER OVER THE CURRENCY; AND (B) THAT CONGRESS MAY ALSO, WITHOUT VIOLATION OF THE FIFTH AMENDMENT, IMPAIR CONTRACTS BY LEGISLATION DRAWN WITH THAT "DIRECT AIM AND EFFECT," IF THAT RIGHT NECESSARILY RESULTS FROM THE NATURE OF THE POWER EXPRESSLY GRANTED TO CONGRESS (E.G., THE BANKRUPTCY POWER). SEE CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST CO. V. CHICAGO, ROCK ISLAND AND PACIFIC RY. CO., 294 U.S. 648, 680, INVOLVING AN ATTACK UPON THE VALIDITY OF SECTION 77 OF THE BANKRUPTCY ACT.

IT MAY BE SAID THAT PAYMENT OF THE PRINCIPAL BEING OBLIGATORY AND ACCEPTED, INTEREST THEREAFTER WOULD BE A GRATUITY AND NOT EARNED, AND WOULD BE RATHER REMOTELY DEPRIVATION OF A PROPERTY RIGHT; THERE BEING ALSO THE FACT THAT THE HOLDER MAY AGAIN PUT THE PRINCIPAL AMOUNT OUT TO EARNING INTEREST. THE CONGRESS ALONE MAY PRESCRIBE THE USES OF THE PUBLIC MONEYS AND BY THE ENACTMENT HAS FIXED AND LIMITED THE MEASURE OF COMPENSATION. BUT, HOWEVER THAT MAY BE, NEITHER THE VETERANS' ADMINISTRATION NOR THIS OFFICE MAY UNDERTAKE TO DETERMINE THE CONSTITUTIONALITY OF A FEDERAL STATUTE, BUT MUST APPLY THE PROVISIONS OF A FEDERAL LAW AS ENACTED BY THE CONGRESS.

THE FIRST PARAGRAPH OF SECTION 2 OF THE ACT OF JANUARY 27, 1936, QUOTED IN YOUR LETTER CANCELING "ANY INTEREST UNPAID ACCRUED SUBSEQUENT TO SEPTEMBER 30, 1931," INSOFAR AS THE VETERAN IS CONCERNED, MAKES NO DISTINCTION BETWEEN LOANS MADE BY THE VETERANS' ADMINISTRATION AND THOSE MADE BY A BANK OR TRUST COMPANY, NOR BETWEEN LOANS WHICH HAVE, AND THOSE WHICH HAVE NOT, MATURED. THE LAST SENTENCE OF THAT PARAGRAPH AUTHORIZES THE VETERANS' ADMINISTRATION TO PAY SUCH CANCELED INTEREST TO ANY BANK OR TRUST COMPANY ON LOANS HELD BY THEM.

THE SECOND PARAGRAPH OF SAID SECTION 2 PRESCRIBES A DEFINITE PROCEDURE FOR REDEEMING SUCH LOANS AS MAY BE HELD BY A BANK OR TRUST COMPANY AT THE TIME APPLICATION IS MADE BY A VETERAN FOR PAYMENT OF HIS CERTIFICATE UNDER THE TERMS OF THE STATUTE. HERE, ALSO, NO DISTINCTION IS MADE BETWEEN MATURED AND UNMATURED LOANS. WHERE THE BANK OR TRUST COMPANY FAILS TO SUBMIT THE UNPAID NOTES AND CERTIFICATE UPON NOTICE BY THE VETERANS' ADMINISTRATION OF THE FILING OF AN APPLICATION UNDER THE STATUTE BY THE VETERAN, PAYMENT OF INTEREST TO THE BANK OR TRUST COMPANY IS EXPRESSLY LIMITED "TO THE FIFTEENTH DAY AFTER THE MAILING OF SUCH NOTICE.' CLEARLY THIS LIMITATION EVINCES NO INTENTION TO AUTHORIZE PAYMENT OF INTEREST TO DATE OF MATURITY OF ANY LOAN.

THE SITUATION CONSIDERED IN THE DECISION OF FEBRUARY 6, 1933, CITED BY YOU, IS NOT PARALLEL TO THE INSTANT MATTER NOR ARE THE PROVISIONS OF LAW THERE CONSIDERED SUFFICIENTLY ANALOGOUS TO THE PROVISIONS OF THE INSTANT LAW TO AUTHORIZE OR REQUIRE A SIMILAR HOLDING. BUT REGARDLESS OF THIS, THE CONGRESS HAS PROVIDED NO MONEYS WITH WHICH TO PAY INTEREST TO BANKS BEYOND THE LIMIT SPECIFICALLY STATED IN THE ACT OF JANUARY 27, 1936, SUPRA, AND ADMINISTRATION UNDER THE ACT IS, OF COURSE, LIMITED ACCORDINGLY. YOU ARE ADVISED, THEREFORE, THAT IN THE REDEMPTION OF UNPAID NOTES HELD BY A BANK OR TRUST COMPANY PURSUANT TO THE PROCEDURE PRESCRIBED BY SECTION 2 OF THE ACT OF JANUARY 27, 1936, THE INTEREST SHOULD BE COMPUTED ONLY TO DATE OF ISSUANCE OF CHECK--- WHERE THE BANK OR TRUST COMPANY PRESENTS THE CERTIFICATE AND UNPAID NOTE FOR PAYMENT WITHIN 15 DAYS AFTER THE MAILING OF NOTICE BY THE VETERANS' ADMINISTRATION OF AN APPLICATION FILED BY THE VETERAN FOR PAYMENT OF HIS CERTIFICATE UNDER THE ACT OR, IN CASE OF FAILURE TO SO COMPLY, THEN THE INTEREST SHOULD BE COMPUTED ONLY UP TO THE FIFTEENTH DAY AFTER THE MAILING OF SUCH NOTICE--- THERE BEING NO AUTHORITY TO MAKE PAYMENT OF INTEREST ON UNMATURED LOANS TO DATE OF MATURITY.