A-85970, AUGUST 5, 1937, 17 COMP. GEN. 99

A-85970: Aug 5, 1937

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RELATES ONLY TO LOANS WHICH DO NOT EXCEED THE FACE VALUE OF PROPER CERTIFICATES ISSUED PURSUANT TO LAW AND IS NOT EFFECTIVE TO STOP THE RUNNING OF INTEREST ON UNLAWFUL OR EXCESS LOANS FOR WHICH VETERANS HAVE EXECUTED NOTES BEARING INTEREST BUT FOR WHICH THE GOVERNMENT HAS NO SECURITY. IS AS FOLLOWS: PURSUANT TO CERTIFICATION BY THE WAR DEPARTMENT THIS ADMINISTRATION ISSUED ADJUSTED SERVICE CERTIFICATE NO. 1699871 DATED JANUARY 1. A LOAN IN THE AMOUNT OF $348.00 WAS GRANTED THE VETERAN BY THE FIRST NATIONAL BANK. WAS MADE TO THE TREASURY DEPARTMENT. AS A RESULT OF THIS NEW CERTIFICATION THE VETERAN'S ADJUSTED SERVICE CERTIFICATE WAS REDUCED FROM $697.00 TO $261.00. THE ADJUSTED SERVICE BONDS AND THE CHECK TOTALING $341.82 ISSUED IN SETTLEMENT OF THE CERTIFICATE WERE RECALLED FROM THE VETERAN AND CANCELLED BY THE TREASURY DEPARTMENT.

A-85970, AUGUST 5, 1937, 17 COMP. GEN. 99

VETERANS' ADMINISTRATION - ADJUSTED SERVICE CERTIFICATES - INTEREST ON EXCESS OR UNLAWFUL LOANS SECTION 2 OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, 49 STAT. 1100, PROVIDING FOR CANCELATION OF ANY UNPAID INTEREST ACCRUED SUBSEQUENT TO SEPTEMBER 30, 1931, THAT OTHERWISE WOULD BE CHARGED A VETERAN AGAINST THE FACE VALUE OF HIS ADJUSTED SERVICE CERTIFICATE, RELATES ONLY TO LOANS WHICH DO NOT EXCEED THE FACE VALUE OF PROPER CERTIFICATES ISSUED PURSUANT TO LAW AND IS NOT EFFECTIVE TO STOP THE RUNNING OF INTEREST ON UNLAWFUL OR EXCESS LOANS FOR WHICH VETERANS HAVE EXECUTED NOTES BEARING INTEREST BUT FOR WHICH THE GOVERNMENT HAS NO SECURITY. PRIOR DECISIONS AFFIRMED OR DISTINGUISHED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, AUGUST 4, 1937:

YOUR LETTER OF MAY 3, 1937, IS AS FOLLOWS:

PURSUANT TO CERTIFICATION BY THE WAR DEPARTMENT THIS ADMINISTRATION ISSUED ADJUSTED SERVICE CERTIFICATE NO. 1699871 DATED JANUARY 1, 1925, IN THE AMOUNT OF $697.00 TO ROY R. WHITLOCK, A-3050083. ON APRIL 15, 1931, A LOAN IN THE AMOUNT OF $348.00 WAS GRANTED THE VETERAN BY THE FIRST NATIONAL BANK, ADA, OKLAHOMA, ON THE SECURITY OF HIS CERTIFICATE. THIS ADMINISTRATION REDEEMED THE CERTIFICATE FROM THE BANK ON OCTOBER 23, 1931, BY PAYMENT OF $356.18, COVERING PRINCIPAL AND INTEREST DUE.

UPON RECEIPT OF A PROPERLY EXECUTED APPLICATION, CERTIFICATION FOR SETTLEMENT OF THE VETERAN'S CERTIFICATE, IN ACCORDANCE WITH THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, WAS MADE TO THE TREASURY DEPARTMENT. HOWEVER, ON JUNE 8, 1936, THE WAR DEPARTMENT FORWARDED A NEW CREDIT CERTIFICATE TO BE SUBSTITUTED FOR THE ORIGINAL. AS A RESULT OF THIS NEW CERTIFICATION THE VETERAN'S ADJUSTED SERVICE CERTIFICATE WAS REDUCED FROM $697.00 TO $261.00. THE ADJUSTED SERVICE BONDS AND THE CHECK TOTALING $341.82 ISSUED IN SETTLEMENT OF THE CERTIFICATE WERE RECALLED FROM THE VETERAN AND CANCELLED BY THE TREASURY DEPARTMENT. THE VETERAN HAS BEEN REQUESTED TO REFUND $94.18, THE DIFFERENCE BETWEEN $355.18, HIS LOAN INDEBTEDNESS AS OF SEPTEMBER 30, 1931, AND $261.00, THE NEW FACE VALUE OF HIS CERTIFICATE. HE HAS NOT AS YET COMPLIED WITH THIS REQUEST.

NOTICE OF EXCEPTION (GENERAL ACCOUNTING OFFICE FORM 2084), DATED JANUARY 9, 1937, READS AS FOLLOWS: "INFORMATION IN THE VETERAN'S A FOLDER SHOWS THAT PAYMENT IS BASED ON AN ADJUSTED SERVICE CERTIFICATE WITH A FACE VALUE OF $697.00. RECERTIFICATION BY THE WAR DEPARTMENT IN A LETTER DATED JUNE 8, 1936, SHOWS THE LEGAL FACE VALUE OF THE VETERAN'S CERTIFICATE TO BE $261.00. A LOAN REDEEMED OCTOBER 23, 1931, WHICH WAS BASED ON THE ORIGINAL CERTIFICATE, IS IN EXCESS OF THE AMOUNT TO WHICH THE VETERAN IS LEGALLY ENTITLED, CAUSING AN OVERPAYMENT IN THE AMOUNT OF $94.18 WITH INTEREST THEREON AT THE RATE OF 4 1/2 PERCENT COMPOUNDED ANNUALLY FROM OCTOBER 1, 1931. SEE A-81973, DATED DECEMBER 23, 1936.'

THERE APPEARS TO BE SOME CONFLICT IN YOUR RECENT DECISIONS IN THE MATTER OF INTEREST CHARGES WHERE OVERPAYMENTS HAVE BEEN MADE FOR ONE REASON OR ANOTHER WHICH ARE POINTED OUT IN THE CASES REFERRED TO BELOW.

YOUR DECISION OF SEPTEMBER 1, 1936, A-80056, IN THE CASE OF ARTHUR C. BIRD, A-1272348, ADDRESSED TO THIS ADMINISTRATION, RELATES TO THE ISSUANCE OF A CERTIFICATE TO A VETERAN WHO HAS PREVIOUSLY, DUE TO ERRONEOUS CERTIFICATION, RECEIVED A CASH PAYMENT FOR ADJUSTED COMPENSATION BENEFITS. IT WAS THERE HELD THAT THE PAYMENT MADE AS ADJUSTED SERVICE CREDIT CONSTITUTES A LOAN AS OF THE DATE OF THE ISSUANCE OF THE CHECK "BEARING INTEREST THEREAFTER AT THE LEGAL RATES AND FOR THE PERIOD STIPULATED IN THE VARIOUS PROVISIONS OF THE WORLD WAR ADJUSTED COMPENSATION ACT AS AMENDED AND THE ADJUSTED COMPENSATION PAYMENT ACT OF 1936.'

SECTION 2 OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, 49STAT. 1099, PROVIDES THAT "IN THE CASE OF EACH LOAN HERETOFORE MADE PURSUANT TO LAW * * * 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 CANCELLED INSOFAR AS THE VETERAN IS CONCERNED, NOTWITHSTANDING ANY PROVISION OF LAW TO THE CONTRARY.'

IN YOUR DECISION A-75880, ADDRESSED TO THIS ADMINISTRATION ON OCTOBER 9, 1936, IN THE CASE OF FRANK H. FROST, A-1552829, WHICH IS ANALOGOUS TO THE WHITLOCK CASE, THERE WAS QUOTED A LETTER DATED JANUARY 15, 1934, ADDRESSED TO THE ATTORNEY GENERAL BY YOUR OFFICE IN WHICH THE FOLLOWING STATEMENT WAS MADE: "ACCORDINGLY BY SETTLEMENT NO. U.S.-3410-VA DATED OCTOBER 9, 1933, THIS OFFICE CERTIFIED FRANK H. FROST A-1552829 TO BE INDEBTED TO THE UNITED STATES IN THE SUM OF $142.27, REPRESENTING THE AMOUNT OF THE EXCESS OF THE LOAN AS OF JANUARY 11, 1933, OVER AN AMOUNT WHICH, WITH INTEREST TO THE MATURITY OF THE CERTIFICATE, WOULD EQUAL THE FACE VALUE OF THE CERTIFICATE, * * *.'

THE FOLLOWING IS ALSO FROM A LETTER ADDRESSED TO THE ATTORNEY GENERAL DATED MAY 28, 1936, AND QUOTED IN DECISION A-75880: "THE CLAIM HAS NOW BEEN CONSIDERED IN CONNECTION WITH THE ACT OF JANUARY 27, 1936, PUBLIC, NO. 425, 74TH CONGRESS, AND IT HAS BEEN DETERMINED THERE IS DUE FROM THE VETERAN THE AMOUNT OF $25.50 COMPUTED AS FOLLOWS:

LOAN OF $330.50 ON DECEMBER 29, 1931 ------------ $330.50

LESS FACE VALUE OF ADJUSTED SERVICE CERTIFICATE NO.

3856365 ---------------------------------- 305.00

BALANCE DUE THE UNITED STATES ----------- 25.50"

IT WILL BE OBSERVED THAT THE COMPUTATION USED BY THE GENERAL ACCOUNTING OFFICE FOR DETERMINING THE AMOUNT TO BE RECOVERED FROM THE VETERAN DOES NOT INCLUDE INTEREST BEYOND SEPTEMBER 30, 1931.

A COMMUNICATION, A-81973, DATED DECEMBER 23, 1936, ADDRESSED TO THE ATTORNEY GENERAL, REQUESTED THAT PROPER PROCEEDINGS BE INSTITUTED TO RECOVER THE AMOUNT DUE THE UNITED STATES IN THE CASE OF EDWARD RAYMOND RYAN, A-203414. THIS CASE WAS SIMILAR TO THE INSTANT CASE IN THAT A LOAN HAD BEEN GRANTED TO THE VETERAN FOR 50 PERCENT OF THE FACE VALUE OF HIS CERTIFICATE, AND THE AMOUNT OF THE CERTIFICATE SUBSEQUENTLY REDUCED CAUSING THE VETERAN TO BE INDEBTED TO THE UNITED STATES. IN THIS COMMUNICATION IT WAS STATED: "WHILE IN THIS CASE THE LOAN WAS PREDICATED UPON AN ADJUSTED SERVICE CERTIFICATE LATER CANCELLED BECAUSE OF SUBSEQUENTLY DISCLOSED FACTS, THE VETERAN, NEVERTHELESS, APPEARS TO HAVE BEEN ENTITLED TO AN ADJUSTED SERVICE CERTIFICATE IN A REDUCED AMOUNT HAVING A FACE VALUE OF $151.00, AND ALTHOUGH THERE MAY BE AN IMPLICATION THAT THE CONGRESS INTENDED TO CANCEL INTEREST ONLY ON THE AMOUNT OF LOANS PROPERLY MADE WHICH LEGALLY COULD NOT EXCEED 50 PERCENTUM OF ITS FACE VALUE (ACT OF FEBRUARY 27, 1931, SUPRA) SAID SECTION 2 OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, DOES NOT IN EXPRESS TERMS SO LIMIT THE CANCELLATION OF INTEREST ACCRUING ON LOANS SUBSEQUENT TO SEPTEMBER 30, 1931, * * *.'

IT WAS THEN AVERRED WITHOUT STATING A REASON FOR THE CONCLUSION REACHED,"* * * IT APPEARS OBVIOUS, HOWEVER, THERE WAS NO INTENT TO CANCEL INTEREST IN EXCESS OF THE FACE VALUE OF AN ADJUSTED SERVICE CERTIFICATE ISSUED PURSUANT TO LAW.' IT WAS FURTHER STATED THAT, "THEREFORE THE INTEREST CANCELLATION AS OF SEPTEMBER 30, 1931, IS FOR APPLICATION ONLY TO THE EXTENT OF THE FACE VALUE OF THE LEGALLY ISSUED ADJUSTED SERVICE CERTIFICATE, I.E., NUMBER 3811667, IN THE AMOUNT OF $151.00. AS SET FORTH IN THE STATEMENT OF THE INDEBTEDNESS, THE BALANCE DUE TO THE UNITED STATES AS OF SEPTEMBER 30, 1931, IS $649.25. INTEREST AT THE RATE OF 4 1/2 PERCENTUM, COMPOUNDED ANNUALLY FROM OCTOBER 1, 1931, IS CHARGEABLE ON THIS AMOUNT TO DATE OF PAYMENT.'

IN THE CASE OF EDWARD H. PESH, A-2285106, ON WHICH YOU RENDERED DECISION A-84227, DATED MARCH 12, 1937, AMONG OTHER QUESTIONS THERE WAS SET FORTH A METHOD OF COMPUTATION OF THE VETERAN'S ACCOUNT FOR YOUR APPROVAL. THE LOAN ON THE ORIGINAL ADJUSTED SERVICE CERTIFICATE WAS MADE ON JUNE 5, 1931, IN THE AMOUNT OF $115.00. INTEREST ON THAT AMOUNT WAS COMPUTED AT THE LEGAL RATES OF 4 1/2 PERCENT COMPOUNDED ANNUALLY FROM JUNE 5, 1931, TO JULY 20, 1932, AND 3 1/2 PERCENT FROM JULY 21, 1932, COMPOUNDED ANNUALLY TO JANUARY 15, 1937. IN YOUR DECISION IT WAS HELD "THE METHOD OF COMPUTATION OF THE VETERAN'S ACCOUNT AS STATED IN YOUR LETTER IS CORRECT.'

IN VIEW OF THE SEEMING CONFLICT BETWEEN DECISION A-80056, DATED SEPTEMBER 1, 1936, SUPRA, DECISION A-75880, DATED OCTOBER 9, 1936, SUPRA, AND DECISION A-84227, DATED MARCH 12, 1937, SUPRA, IT IS REQUESTED THAT THE QUESTION BE RECONSIDERED AND THAT THIS ADMINISTRATION BE ADVISED IN THE INSTANT CASE WHETHER SECTION 2 OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, PROVIDING FOR THE CANCELLATION OF UNPAID ACCRUED INTEREST SUBSEQUENT TO SEPTEMBER 30, 1931, INSOFAR AS THE VETERAN IS CONCERNED, SHALL APPLY TO CANCEL THE INTEREST ON THE OVERPAYMENT AFTER SEPTEMBER 30, 1931, AS WAS DONE IN THE CASE OF FRANK H. FROST, A-1552829, WHICH WAS THE SUBJECT OF YOUR DECISION A-75880, DATED OCTOBER 9, 1936, OR WHETHER YOUR DECISION A 81973, DATED DECEMBER 23, 1936, IN THE CASE OF EDWARD RAYMOND RYAN, A 203414, OR WHETHER YOUR DECISION A-84227, DATED MARCH 12, 1937, SHALL BE CONTROLLING; AND IF EITHER OF THE TWO LATTER CASES, WHAT RATE OF INTEREST SHALL BE CHARGED AND FOR WHAT PERIOD.

IT IS DESIRED TO INVITE YOUR ATTENTION TO THE FACT THAT PRIOR AND SUBSEQUENT TO YOUR DECISION A-75880, DATED OCTOBER 9, 1936, IN THE CASE OF FRANK H. FROST, A-1552829, IN ALL CASES OF OVERPAYMENTS WHERE VETERANS WERE ENTITLED TO A CERTIFICATE IN ANY AMOUNT, INTEREST ON THE INDEBTEDNESSES WAS COMPUTED IN ACCORDANCE WITH THE METHOD ANNOUNCED IN YOUR LETTER TO THE ATTORNEY GENERAL, DATED MAY 28, 1936, AND QUOTED IN YOUR DECISION A-75880, DATED OCTOBER 9, 1936.

YOUR DECISION A-81973, ADDRESSED TO THE ATTORNEY GENERAL, DATED DECEMBER 23, 1936, IN THE CASE OF EDWARD RAYMOND RYAN, A-203414, CHANGING THE METHOD OF DETERMINING THE INDEBTEDNESS, WHICH REQUIRES THE COMPUTATION OF INTEREST AT THE RATE SHOWN IN THE NOTE IN CASES OF OVERPAYMENTS, WAS RENDERED AFTER THE WORK ON SUCH CASES WAS PRACTICALLY COMPLETED BOTH BY THE VETERANS' ADMINISTRATION AND THE GENERAL ACCOUNTING OFFICE. CONSIDERABLE DIFFICULTY WOULD BE EXPERIENCED IN REOPENING ALL OF THE CASES PREVIOUSLY ADJUSTED AND READJUSTING THEM UNDER DECISION A-81973, DATED DECEMBER 23, 1936, IN THE CASE OF EDWARD RAYMOND RYAN, A-203414.

INASMUCH AS THERE ARE SEVERAL CASES SIMILAR TO THAT OF ROY R. WHITLOCK, A -3050083, NOW PENDING WHICH WILL BE HELD IN ABEYANCE UNTIL YOU HAVE RECONSIDERED THE MATTER AND ADVISED THE VETERANS' ADMINISTRATION, YOUR EARLY DECISION WILL BE APPRECIATED.

YOUR SUBMISSION RELATES TO THE COMPUTATION OF INTEREST AFTER SEPTEMBER 30, 1931, ON UNLAWFUL OR EXCESS LOANS FOR WHICH VETERANS HAVE EXECUTED NOTES BEARING INTEREST BUT FOR WHICH THE GOVERNMENT HAS NO SECURITY.

THIS OFFICE HAS HELD CONSISTENTLY THAT INTEREST IS CHARGEABLE ON ALL UNLAWFUL OR EXCESS LOANS ON THE BASIS OF THE NOTE UNTIL PAID, NOTWITHSTANDING FAILURE OF THE SECURITY, AND THAT SECTION 2 OF THE ADJUSTED COMPENSATION PAYMENT ACT OF 1936, APPROVED JANUARY 27, 1936, 49 STAT. 1100, WAS WITHOUT EFFECT TO STOP THE RUNNING OF INTEREST ON SUCH LOANS AS OF SEPTEMBER 30, 1931, BECAUSE IT RELATES ONLY TO INTEREST ON LOANS WHICH DO NOT EXCEED THE FACE VALUE OF THE ADJUSTED SERVICE CERTIFICATE ISSUED PURSUANT TO LAW.

YOU SUGGEST THAT THERE IS A "SEEMING CONFLICT BETWEEN DECISION A 80056, DATED SEPTEMBER 1, 1936, SUPRA, DECISION A-75880, DATED OCTOBER 9, 1936, SUPRA, AND DECISION A-84227, DATED MARCH 12, 1937, SUPRA," WITH REGARD TO THE CHARGING OF INTEREST ON UNLAWFUL OR EXCESS LOANS, PARTICULARLY FOR PERIODS AFTER SEPTEMBER 30, 1931. HOWEVER, A CAREFUL ANALYSIS OF THESE DECISIONS DISCLOSES NO CONFLICT UPON THE QUESTIONS THEREIN CONSIDERED.

THE DECISION OF SEPTEMBER 1, 1936, A-80056, INVOLVED NO QUESTION OF CHARGING, OR NOT CHARGING, INTEREST AFTER SEPTEMBER 30, 1931. THE DECISION HELD THAT AN ERRONEOUS PAYMENT OF THE ADJUSTED SERVICE CREDIT OF THE VETERAN SHOULD BE REGARDED AS A LOAN AGAINST THE SUBSEQUENTLY ISSUED ADJUSTED SERVICE CERTIFICATE UPON SETTLEMENT THEREOF UNDER THE TERMS OF THE ADJUSTED COMPENSATION PAYMENT ACT OF 1936. INTEREST WOULD NOT BE CHARGEABLE IN THAT CASE AFTER SEPTEMBER 30, 1931, AS THERE WAS NO CONTRACTUAL RELATION BETWEEN THE VETERAN AND THE UNITED STATES INDEPENDENT OF THE ADJUSTED SERVICE CERTIFICATE; THAT IS, THE VETERAN EXECUTED NO NOTE IN THE CASE.

IN A-75880, DATED OCTOBER 9, 1936, THE QUESTION CONSIDERED AND DECIDED WAS THAT THE UNITED STATES HAD AUTHORITY TO MAKE SETTLEMENT UNDER THE ADJUSTED COMPENSATION PAYMENT ACT, NOTWITHSTANDING THE VETERAN HAD FILED NO APPLICATION THEREUNDER, WHERE THE LOAN VALUE OF AN ADJUSTED SERVICE CERTIFICATE DOES NOT EQUAL OR EXCEED THE AMOUNT DUE THE UNITED STATES FROM THE VETERAN ON ACCOUNT OF UNPAID LOANS. UNFORTUNATELY, THE LETTER OF MAY 28, 1936, QUOTED IN THE DECISION TO WHICH YOU CALL ATTENTION, SHOWED THE ACCOUNT STATED WITH THE INTEREST CHARGE OMITTED. HOWEVER, THE OMISSION OF THE INTEREST CHARGE WAS AN OVERSIGHT AND HAD NO BEARING UPON THE QUESTION CONSIDERED AND DECIDED.

THE DECISION OF MARCH 12, 1937, A-84227, CLEARLY SUPPORTS THE GENERAL RULE STATED IN OTHER DECISIONS OF THIS OFFICE, PARTICULARLY THE DECISION OF DECEMBER 23, 1936, A-81973, CITED BY YOU, THAT INTEREST ON UNLAWFUL OR EXCESS LOANS DOES NOT CEASE ON SEPTEMBER 30, 1931, BUT CONTINUES UNTIL PAID ON THE BASIS OF THE CONTRACTUAL RELATION EVIDENCED BY THE NOTE EXECUTED BY THE VETERAN.

YOU ARE ADVISED, THEREFORE, THAT THE AUDIT ACTION IN THE CASE OF ROY R. WHITLOCK, A-3050083, IS SUSTAINED. IT WILL BE NECESSARY TO REOPEN AND RECOMPUTE THE INDEBTEDNESS IN ALL CASES INVOLVING UNLAWFUL OR EXCESS LOANS WHERE THE FORMER COMPUTATION OF THE INDEBTEDNESS DID NOT INCLUDE A CHARGE OF INTEREST AFTER SEPTEMBER 30, 1931, AT THE RATE STATED IN THE NOTE EXECUTED BY THE VETERAN.