A-74856, JUNE 26, 1936, 15 COMP. GEN. 1133

A-74856: Jun 26, 1936

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000 WAS DISCOVERED IN GOVERNMENT FUNDS TO WHICH CORNELL PREVIOUSLY HAD ACCESS. HE WAS TAKEN INTO CUSTODY BY THE NAVY. WAS ORDERED TO TRIAL ON THE CHARGES AND SPECIFICATIONS PREFERRED AGAINST HIM IN 1918 WHILE HE WAS IN THE STATUS OF A FUGITIVE FROM JUSTICE. CORNELL WAS BROUGHT TO TRIAL AT THE NAVY YARD. THE SECOND CHARGE AND SPECIFICATION WAS NOLPROSSED. HE WAS SENTENCED TO IMPRISONMENT FOR THREE YEARS AT HARD LABOR. I WAS IN MINNEAPOLIS. I WAS ENGAGED PRINCIPALLY IN TRAVEL. MY ARMY SERIAL NUMBER IS 2592295. I THEN RETURNED TO THE UNITED STATES AND WAS DISCHARGED AT FORT MONROE. IT WAS STATED. AN OPERATION WAS PERFORMED ON HIM AND HE "WAS FOUND TO BE SUFFERING WITH AN INOPERABLE AND INCURABLE CANCER OF THE STOMACH WHICH HAD ALREADY INVADED OTHER ORGANS" AND THE OPINION WAS EXPRESSED THAT "HIS DURATION OF LIFE IS FROM THREE TO SIX MONTHS AND FURTHERMORE IT IS OUR OPINION THAT HE WILL NEVER BE ABLE TO BEGIN OR UNDERGO THE SENTENCE" OF IMPRISONMENT ADJUDGED IN HIS CASE.

A-74856, JUNE 26, 1936, 15 COMP. GEN. 1133

VETERANS' BENEFITS - SET-OFF - INDEBTEDNESS ARISING OUT OF EMBEZZLEMENT OF GOVERNMENT FUNDS BENEFITS DUE AND PAYABLE TO A VETERAN OR HIS ESTATE UNDER VETERANS' LEGISLATION OTHER THAN THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, OR THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, 49 STAT. 1099, MAY BE APPLIED AGAINST THE VETERAN'S INDEBTEDNESS TO THE UNITED STATES ARISING FROM HIS EMBEZZLEMENT OF GOVERNMENT FUNDS, BUT BENEFITS PAYABLE TO THE BENEFICIARY OF HIS INSURANCE MAY NOT BE SO APPLIED.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE NAVY, JUNE 26, 1936:

THERE HAS BEEN CONSIDERED THE MATTER PRESENTED IN YOUR LETTER OF MAY 4, 1936, AS FOLLOWS:

THE RECORDS OF THE NAVY DEPARTMENT SHOW THAT JOHN M. CORNELL, FORMERLY PAY CLERK, U.S. NAVY, RESIGNED HIS WARRANT AS SUCH PAY CLERK, EFFECTIVE OCTOBER 16, 1916. SUBSEQUENTLY A SHORTAGE OF ABOUT $20,000 WAS DISCOVERED IN GOVERNMENT FUNDS TO WHICH CORNELL PREVIOUSLY HAD ACCESS, AND ON MAY 25, 1918, THE NAVY DEPARTMENT ORDERED HIS TRIAL BY GENERAL COURT-MARTIAL ON THE CHARGES OF (I) "STEALING MONEY OF THE UNITED STATES INTENDED FOR THE NAVAL SERVICE THEREOF" AND (II) "EXECUTING A FRAUD AGAINST THE UNITED STATES.' ON FEBRUARY 19, 1936, FOLLOWING CORNELL'S SURRENDER AND CONFESSION TO FEDERAL AUTHORITIES, HE WAS TAKEN INTO CUSTODY BY THE NAVY, AND ON FEBRUARY 28, 1936, WAS ORDERED TO TRIAL ON THE CHARGES AND SPECIFICATIONS PREFERRED AGAINST HIM IN 1918 WHILE HE WAS IN THE STATUS OF A FUGITIVE FROM JUSTICE. ON FEBRUARY 28, 1936, THE SECRETARY OF THE NAVY DIRECTED THE JUDGE ADVOCATE OF CORNELL'S GENERAL COURT-MARTIAL TO ENTER A NOLLE PROSEQUI AS TO CHARGE II AND THE SPECIFICATION THEREUNDER IN THE EVENT THAT, UPON ARRAIGNMENT, THE ACCUSED ENTERED A PLEA OF GUILTY TO CHARGE I AND THE SPECIFICATION THEREUNDER.

IN ACCORDANCE WITH THE ABOVE, CORNELL WAS BROUGHT TO TRIAL AT THE NAVY YARD, NEW YORK, N.Y., ON MARCH 11, 1936, AND AS HE PLEADED GUILTY TO THE FIRST CHARGE AND THE SPECIFICATION THEREUNDER, THE SECOND CHARGE AND SPECIFICATION WAS NOLPROSSED. HE WAS SENTENCED TO IMPRISONMENT FOR THREE YEARS AT HARD LABOR. THE ACTING SECRETARY OF THE NAVY ON MARCH 21, 1936, APPROVED THE PROCEEDINGS, FINDINGS, AND SENTENCE OF THE GENERAL COURT- MARTIAL AND DESIGNATED THE NAVAL PRISON, PORTSMOUTH, N.H., AS THE PLACE OF IMPRISONMENT.

IN CORNELL'S SIGNED CONFESSION TO THE FEDERAL CIVIL AUTHORITIES, DATED FEBRUARY 18, 1936, HE STATED, IN PART, AS FOLLOWS:

"* * * FOLLOWING MY RESIGNATION FROM THE NAVY IN OCTOBER 1916, I WENT TO CHICAGO, ILLINOIS, WHERE I REMAINED UNTIL JANUARY 1917. I WAS IN MINNEAPOLIS, MINNESOTA, DURING JANUARY AND FEBRUARY 1917. I THEN WENT TO CALIFORNIA, WHERE I REMAINED UNTIL AUGUST 1917. BETWEEN AUGUST 1917 AND JULY 1918, I WAS ENGAGED PRINCIPALLY IN TRAVEL. DURING THIS PERIOD, HOWEVER, I DID SPEND ONE FULL MONTH IN PITTSBURGH, PENNSYLVANIA. WHILE IN PITTSBURGH, I HEARD THAT THE THIRD ANTI AIRCRAFT ARTILLERY, STATIONED AT FORT MORGAN, ALABAMA, WOULD LEAVE FOR FOREIGN DUTY IMMEDIATELY. SINCE I DESIRED TO ENLIST IN THE ARMY AND GO ABROAD AT ONCE, I WENT TO FORT MORGAN, ALABAMA, AND ENLISTED IN THE THIRD ANTI-AIRCRAFT ARTILLERY, IN JULY 1918. I ENLISTED UNDER THE NAME OF ROBERT E. HASTINGS. MY ARMY SERIAL NUMBER IS 2592295. I SERVED OVERSEAS FROM AUGUST 8, 1918, TO JANUARY 3, 1919. I THEN RETURNED TO THE UNITED STATES AND WAS DISCHARGED AT FORT MONROE, VIRGINIA, JANUARY 20, 1919.'

IN A LETTER ADDRESSED BY THE COMMANDING OFFICER, U.S. NAVAL HOSPITAL, BROOKLYN, N.Y., TO THE COMMANDANT, THIRD NAVAL DISTRICT, NEW YORK, N.Y., DATED APRIL 8, 1936, IT WAS STATED, RELATIVE TO THE PHYSICAL CONDITION OF CORNELL, THAT ON MARCH 26, 1936, AN OPERATION WAS PERFORMED ON HIM AND HE "WAS FOUND TO BE SUFFERING WITH AN INOPERABLE AND INCURABLE CANCER OF THE STOMACH WHICH HAD ALREADY INVADED OTHER ORGANS" AND THE OPINION WAS EXPRESSED THAT "HIS DURATION OF LIFE IS FROM THREE TO SIX MONTHS AND FURTHERMORE IT IS OUR OPINION THAT HE WILL NEVER BE ABLE TO BEGIN OR UNDERGO THE SENTENCE" OF IMPRISONMENT ADJUDGED IN HIS CASE.

THE NAVY DEPARTMENT HAS BEEN INFORMED UNOFFICIALLY THAT CORNELL HAS GOVERNMENT INSURANCE NOW IN EFFECT WHICH WAS TAKEN OUT WHEN HE WAS IN THE ARMY DURING THE WORLD WAR UNDER THE NAME OF ROBERT E. HASTINGS, AND IT IS ALSO UNOFFICIALLY UNDERSTOOD THAT HE WILL BE ENTITLED, IF CLAIM IS MADE THEREFOR, TO VETERANS' BENEFITS, INCLUDING HOSPITALIZATION AND COMPENSATION FOR PHYSICAL DISABILITY, BY REASON OF HIS ARMY WORLD WAR SERVICE.

IN VIEW OF THE FACT THAT CORNELL STANDS CONVICTED OF EMBEZZLING $20,000 FROM THE GOVERNMENT, THE FACTS OF THIS CASE ARE BROUGHT TO YOUR ATTENTION FOR CONSIDERATION AS TO ANY POSSIBLE SET-OFF OF CLAIMS BY THE UNITED STATES AGAINST ANY AMOUNTS WHICH MAY BE FOUND TO BE DUE AND PAYABLE TO CORNELL, ALIAS HASTINGS, OR HIS DESIGNATED BENEFICIARY. IN THIS CONNECTION PARTICULAR ATTENTION IS INVITED TO THE PROVISIONS OF U.S. CODE, TITLE 38, SECTION 454, AS FOLLOWS:

THE COMPENSATION, INSURANCE, AND MAINTENANCE AND SUPPORT ALLOWANCE PAYABLE UNDER PARTS II, III, AND IV, RESPECTIVELY, SHALL NOT BE ASSIGNABLE; SHALL NOT BE SUBJECT TO THE CLAIMS OF CREDITORS OF ANY PERSON TO WHOM AN AWARD IS MADE UNDER PARTS II, III, OR IV; AND SHALL BE EXEMPT FROM ALL TAXATION. SUCH COMPENSATION, INSURANCE, AND MAINTENANCE AND SUPPORT ALLOWANCES SHALL BE SUBJECT TO ANY CLAIMS WHICH THE UNITED STATES MAY HAVE, UNDER PARTS II, III, IV, AND V, AGAINST THE PERSON ON WHOSE ACCOUNT THE COMPENSATION, INSURANCE, OR MAINTENANCE AND SUPPORT ALLOWANCE IS PAYABLE. * * *

IT IS REQUESTED THAT THE NAVY DEPARTMENT BE INFORMED OF ANY ACTION TAKEN IN THIS CASE.

THE CODE PROVISION QUOTED IN YOUR LETTER WAS ENACTED AS A PART OF SECTION 22, WORLD WAR VETERANS' ACT, 1924 (43 STAT. 613), WHICH WAS REPEALED AND SUPERSEDED BY SECTION 3 OF THE ACT OF AUGUST 12, 1935 (49 STAT. 609), WHICH PROVIDES:

PAYMENTS OF BENEFITS DUE OR TO BECOME DUE SHALL NOT BE ASSIGNABLE, AND SUCH PAYMENTS MADE TO, OR ON ACCOUNT OF, A BENEFICIARY UNDER ANY OF THE LAWS RELATING TO VETERANS SHALL BE EXEMPT FROM TAXATION, SHALL BE EXEMPT FROM THE CLAIMS OF CREDITORS, AND SHALL NOT BE LIABLE TO ATTACHMENT, LEVY, OR SEIZURE BY OR UNDER ANY LEGAL OR EQUITABLE PROCESS WHATEVER, EITHER BEFORE OR AFTER RECEIPT BY THE BENEFICIARY. SUCH PROVISIONS SHALL NOT ATTACH TO CLAIMS OF THE UNITED STATES ARISING UNDER SUCH LAWS NOR SHALL THE EXEMPTION HEREIN CONTAINED AS TO TAXATION EXTEND TO ANY PROPERTY PURCHASED IN PART OR WHOLLY OUT OF SUCH PAYMENTS. SECTION 4747 OF THE REVISED STATUTES AND SECTION 22 OF THE WORLD WAR VETERANS' ACT, 1924, ARE HEREBY REPEALED, AND ALL OTHER ACTS INCONSISTENT HEREWITH ARE HEREBY MODIFIED ACCORDINGLY. THE PROVISIONS OF THIS SECTION SHALL NOT BE CONSTRUED TO PROHIBIT THE ASSIGNMENT BY ANY PERSON, TO WHOM CONVERTED INSURANCE SHALL BE PAYABLE UNDER TITLE III OF THE WORLD WAR VETERANS' ACT, 1924, OF HIS INTEREST IN SUCH INSURANCE TO ANY OTHER MEMBER OF THE PERMITTED CLASS OF BENEFICIARIES.

THIS STATUTE WAS MODIFIED, WITH RESPECT TO WORLD WAR ADJUSTED COMPENSATION PAYMENTS, BY SECTION 7 OF THE ADJUSTED-COMPENSATION PAYMENT ACT, 1936 (49 STAT. 1101), AS FOLLOWS:

NOTWITHSTANDING THE PROVISIONS OF PUBLIC LAW NUMBERED 262, SEVENTY FOURTH CONGRESS, APPROVED AUGUST 12, 1935, NO DEDUCTIONS ON ACCOUNT OF ANY INDEBTEDNESS OF THE VETERAN TO THE UNITED STATES EXCEPT ON ACCOUNT OF ANY LIEN AGAINST THE ADJUSTED SERVICE CERTIFICATE AUTHORIZED BY LAW SHALL BE MADE FROM THE ADJUSTED-SERVICE CREDIT OR FROM ANY AMOUNTS DUE UNDER THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, OR THIS ACT.

SECTION 22 OF THE WORLD WAR VETERANS' ACT, 1924, ABOVE REFERRED TO, WAS, IN SUBSTANTIALLY IDENTICAL LANGUAGE, FORMERLY SECTION 28, WAR RISK INSURANCE ACT, AS AMENDED BY THE ACT OF JUNE 25, 1918 (40 STAT. 609; UNDER THIS LATTER PROVISION OF THE STATUTE THERE WAS CONSIDERED IN 26 COMP. DEC. 949 A QUESTION PRESENTED BY THE SECRETARY OF THE TREASURY TO THE THEN COMPTROLLER OF THE TREASURY AS FOLLOWS:

(A) THE NAVY DEPARTMENT ERRONEOUSLY PAYS A DISCHARGED SAILOR A SECOND BONUS OR OVERPAYS THE SAILOR ON HIS FINAL ACCOUNTS. THE SAILOR IS A CLAIMANT FOR COMPENSATION. MAY THE BUREAU, IN VIEW OF THE LANGUAGE OF SECTION 28 OF THE WAR RISK INSURANCE ACT, DEDUCT THE MISTAKEN OVERPAYMENT FROM ANY COMPENSATION AWARDED TO THE SAILOR OR, IN CASE OF THE SAILOR'S DEATH, FROM HIS LIFE INSURANCE PAYABLE TO HIS WIFE?

IN SAID DECISION IT WAS HELD, IN PERTINENT PART, AS FOLLOWS:

* * * THE GOVERNMENT HAS AN INHERENT RIGHT INDEPENDENTLY OF THE SAID ACT TO SET OFF AN AMOUNT DUE FROM THE ALLOTTEE TO THE UNITED STATES AGAINST THE AMOUNT DUE FROM THE UNITED STATES TO THE ALLOTTEE. IF THIS IS TRUE WHERE BOTH DEBIT AND CREDIT ARISE IN THE SAME ACCOUNT, IT IS EQUALLY TRUE WHERE DEBIT AND CREDIT ARISE IN DIFFERENT ACCOUNTS OR IN DIFFERENT BRANCHES OF THE SERVICE. IN EITHER CASE IT IS THE UNITED STATES THAT IS DEBTOR AND CREDITOR. THE RESPECTIVE SECTIONS, BUREAUS, OR DEPARTMENTS IN WHICH THE TRANSACTIONS MAY HAVE OCCURRED ARE MERE AGENCIES OR INSTRUMENTALITIES OF THE UNITED STATES GOVERNMENT. I THINK THAT NO CHANGE IN THIS GENERAL RULE WAS INTENDED TO BE EFFECTED BY THE STATUTE HEREINBEFORE QUOTED, AND NONE IS EFFECTED THEREBY.

* * * IN CASE A, IF THE SAILOR HIMSELF IS THE BENEFICIARY, UNDER THE COMPENSATION PROVISION THE UNITED STATES MAY DEDUCT FROM ANY COMPENSATION WHICH MAY BE AWARDED TO HIM THE AMOUNT WHICH HE OWES THE UNITED STATES, BECAUSE OF THE DUPLICATE BONUS PAYMENT OR THE OVERPAYMENT ON FINAL ACCOUNT, IN ACCORDANCE WITH THE RULE HEREINBEFORE ANNOUNCED. IF THE WIFE IS BENEFICIARY, UNDER THE INSURANCE PROVISION DEDUCTION FROM HER INSURANCE ON ACCOUNT OF THE DUPLICATE BONUS PAYMENT IS NOT AUTHORIZED. PAYMENT OF BONUS IS PROVIDED FOR BY ANOTHER STATUTE HAVING NO CONNECTION WITH THE WAR RISK INSURANCE ACT OR ITS ADMINISTRATION. ASSUMING THE ERRONEOUS SECOND PAYMENT TO HAVE BEEN MADE TO THE SAILOR AFTER HIS DISCHARGE AND NOT AS PART OF FINAL SETTLEMENT OF HIS PAY ACCOUNT, IT CAN HAVE NO CONNECTION WITH WAR RISK INSURANCE PAYMENTS AND THEREFORE CANNOT RAISE A CLAIM AGAINST THE SAILOR UNDER ARTICLES II, III, OR IV OF THE ACT. WHETHER AN OVERPAYMENT OF THE SAILOR ON HIS FINAL ACCOUNT MAY BE DEDUCTED FROM INSURANCE AWARDED TO THE WIFE DEPENDS UPON THE NATURE AND CAUSE OF THE OVERPAYMENT. IF IT GREW OUT OF OR WAS CAUSED DIRECTLY OR INDIRECTLY BY THE ADMINISTRATION OF THE WAR RISK INSURANCE ACT, AS, FOR EXAMPLE, A FAILURE TO CHARGE AGAINST SOLDIER'S PAY AN ALLOTMENT OF PAY WHICH HAD BEEN PAID UNDER THE ACT TO THE WIFE OR ANY OTHER PERSON, SUCH OVERPAYMENT GIVES THE UNITED STATES A CLAIM AGAINST THE SAILOR ARISING UNDER ARTICLE II OF THE ACT THE AMOUNT OF WHICH MAY BE DEDUCTED FROM INSURANCE AWARDED TO THE WIFE.

IN AGAIN CONSIDERING THE PROVISIONS OF SECTION 28, WAR RISK INSURANCE ACT, THE FOLLOWING WAS SAID IN 2 COMP. GEN. 16:

IT HAS BEEN HELD THAT UNDER THE PROVISIONS OF SECTION 28 OF THE WAR RISK INSURANCE ACT, AS AMENDED BY THE ACT OF JUNE 25, 1918 (40 STAT. 609). PAYMENT OF INSURANCE TO BENEFICIARIES IS NOT SUBJECT TO DEDUCTION ON ACCOUNT OF A CLAIM OF THE UNITED STATES AGAINST THE INSURED NOT ARISING UNDER ARTICLES II, III, IV OF THE WAR RISK INSURANCE ACT (26 COMP. DEC. 949). THAT DECISION STATES THE LAW CORRECTLY. * * *

COMPARE, ALSO, 8 COMP. GEN. 31, A-49107, JULY 3, 1933, AND A-61930, MAY 24, 1935.

SINCE SECTION 28 OF THE WAR RISK INSURANCE ACT WAS THE KINDRED STATUTE ANTECEDENT TO SECTION 22, WORLD WAR VETERANS' ACT, 1924, AND NOW SUPERSEDED BY SECTION 3 OF THE ACT OF AUGUST 12, 1935, SUPRA, IT FOLLOWS THAT WHAT WAS STATED IN THE QUOTED DECISIONS, SUPRA, IS FOR APPLICATION IN THE CASE PRESENTED HERE. THAT IS TO SAY, AS BETWEEN THE VETERAN AND THE GOVERNMENT THERE EXISTS A DEBTOR-CREDITOR RELATIONSHIP, AND WHERE SUCH RELATIONSHIP EXISTS THERE IS, IN THE ABSENCE OF A STATUTE EXPRESSLY PROVIDING OTHERWISE, THE COMMON-LAW RIGHT OF SET-OFF. THIS RIGHT OF SET- OFF IS IN NOWISE AFFECTED BY SECTION 3 OF THE ACT OF AUGUST 12, 1935, AND THE KINDRED STATUTES ANTECEDENT THERETO. ON THE CONTRARY, THE REFERRED-TO STATUTE ENLARGES THE COMMON-LAW RIGHT OF OFFSET BY AUTHORIZING THE GOVERNMENT TO APPLY AGAINST THE VETERAN'S INDEBTEDNESS BENEFITS WHICH ARE PAYABLE UNDER VETERANS' LEGISLATION TO THIRD PARTIES WHERE THE INDEBTEDNESS ARISES FROM ERRONEOUS OR UNLAWFUL PAYMENTS MADE UNDER SUCH VETERANS' LEGISLATION--- THERE BEING AS BETWEEN SAID THIRD PARTIES AND THE GOVERNMENT IN SUCH A CASE NO DEBTOR-CREDITOR RELATIONSHIP, AND BUT FOR THE STATUTE THERE WOULD BE NO RIGHT OF OFFSET.

BY APPLYING THE RULES HEREIN STATED, THEREFORE, YOU ARE ADVISED THAT BENEFITS WHICH MAY BE DUE AND PAYABLE TO THE VETERAN OR HIS ESTATE UNDER VETERANS' LEGISLATION OTHER THAN THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, OR THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, MAY BE APPLIED AGAINST THE VETERAN'S INDEBTEDNESS TO THE GOVERNMENT ARISING FROM HIS EMBEZZLEMENT OF GOVERNMENT FUNDS, ON THE GROUND OF A DEBTOR-CREDITOR RELATIONSHIP, BUT THAT ANY BENEFITS WHICH MAY BE DUE AND PAYABLE TO THE BENEFICIARY OF HIS INSURANCE MAY NOT BE SO APPLIED FOR THE REASON THAT THE VETERANS' INDEBTEDNESS DID NOT ARISE FROM ANY PAYMENT UNDER VETERANS' LEGISLATION. THE ADMINISTRATOR OF VETERANS' AFFAIRS MAY BE SO ADVISED IN THE MATTER.