A-90941, DECEMBER 11, 1937, 17 COMP. GEN. 486

A-90941: Dec 11, 1937

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IS UNAUTHORIZED PENDING THE OUTCOME OF A SUIT BY THE GUARDIAN OF THE VETERAN FOR REPLEVIN OF THE CERTIFICATE. NOTWITHSTANDING THE LOAN WAS MADE UNDER CIRCUMSTANCES WHICH WOULD NOT OTHERWISE REQUIRE DENIAL OF REIMBURSEMENT OF THE LENDING BANK UNDER THE GENERAL RULE OF CONSTRUCTIVE NOTICE OF A COURT JUDGMENT OF DISABILITY. IS AS FOLLOWS: THE FIRST NATIONAL BANK. OBTAINED AN AFFIDAVIT FROM HIM TO THE EFFECT THAT THE VETERAN WAS NOT INCOMPETENT OR UNDER GUARDIANSHIP AT THE TIME. THE RECORDS OF THIS ADMINISTRATION SHOW THAT THE VETERAN WAS ADJUDICATED A PERSON OF UNSOUND MIND IN THE PROBATE COURT OF SHELBY COUNTY. WAS APPOINTED HIS GUARDIAN. THIS GUARDIAN WAS DISCHARGED JANUARY 15. WAS THE SAME DATE APPOINTED SUCCESSOR GUARDIAN AND DISCHARGED ON OCTOBER 28.

A-90941, DECEMBER 11, 1937, 17 COMP. GEN. 486

VETERANS' ADMINISTRATION - ADJUSTED COMPENSATION - LOAN BY BANK DIRECT TO INCOMPETENT - GOVERNMENT REIMBURSEMENT DURING PENDENCY OF GUARDIAN'S SUIT FOR REPLEVIN OF THE ADJUSTED SERVICE CERTIFICATE PAYMENT BY THE VETERANS' ADMINISTRATION TO A BANK IN CONNECTION WITH A LOAN MADE BY THE BANK DIRECT TO AN INCOMPETENT VETERAN ON THE SECURITY OF HIS ADJUSTED SERVICE CERTIFICATE, IS UNAUTHORIZED PENDING THE OUTCOME OF A SUIT BY THE GUARDIAN OF THE VETERAN FOR REPLEVIN OF THE CERTIFICATE, WHICH MAY REQUIRE A DETERMINATION BY THE COURT AS TO THE LEGALITY OF THE LOAN, NOTWITHSTANDING THE LOAN WAS MADE UNDER CIRCUMSTANCES WHICH WOULD NOT OTHERWISE REQUIRE DENIAL OF REIMBURSEMENT OF THE LENDING BANK UNDER THE GENERAL RULE OF CONSTRUCTIVE NOTICE OF A COURT JUDGMENT OF DISABILITY.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, DECEMBER 11, 1937:

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

THE FIRST NATIONAL BANK, SAINT PAUL, MINNESOTA, GRANTED A LOAN IN THE AMOUNT OF $792.00 TO CHARLES LAWRENCE CAWTHON, A-34,562, ON APRIL 8, 1931, SECURED BY HIS ADJUSTED-SERVICE CERTIFICATE NO. 2,002,061, ISSUED IN THE AMOUNT OF $1,584.00, DATED JANUARY 1, 1925, WHICH HE DEPOSITED WITH THE BANK.

BEFORE MAKING THE LOAN, THE FIRST NATIONAL BANK OF SAINT PAUL, MINNESOTA, MADE INQUIRY OF MR. A. B. LEWIS, VICE PRESIDENT OF THE BANK OF COMMERCE AND TRUST COMPANY, MEMPHIS, TENNESSEE, AND OBTAINED AN AFFIDAVIT FROM HIM TO THE EFFECT THAT THE VETERAN WAS NOT INCOMPETENT OR UNDER GUARDIANSHIP AT THE TIME. HOWEVER, THE RECORDS OF THIS ADMINISTRATION SHOW THAT THE VETERAN WAS ADJUDICATED A PERSON OF UNSOUND MIND IN THE PROBATE COURT OF SHELBY COUNTY, TENNESSEE, ON OCTOBER 18, 1919, AND HIS MOTHER, MRS. MAE ELDER CAWTHON, WAS APPOINTED HIS GUARDIAN. THIS GUARDIAN WAS DISCHARGED JANUARY 15, 1929, AND THE VETERAN'S WIFE, MRS. BRIDE LEE REGAN CAWTHON, WAS THE SAME DATE APPOINTED SUCCESSOR GUARDIAN AND DISCHARGED ON OCTOBER 28, 1932. THE FIRST NATIONAL BANK OF MEMPHIS, TENNESSEE, WAS THEN APPOINTED GUARDIAN AND THIS APPOINTMENT IS STILL IN FULL FORCE AND EFFECT.

ON NOVEMBER 30, 1936, THE PRESENT GUARDIAN, THE FIRST NATIONAL BANK OF MEMPHIS, TENNESSEE, FILED AN APPLICATION (FORM 1701) FOR SETTLEMENT OF THE VETERAN'S ADJUSTED-SERVICE CERTIFICATE AS PROVIDED BY THE ADJUSTED COMPENSATION PAYMENT ACT, 1936. THE FIRST NATIONAL BANK OF SAINT PAUL, MINNESOTA, WAS ADVISED THAT THE NOTE EXECUTED BY THE VETERAN COVERING THE LOAN GRANTED BY THE BANK WOULD BE ACCEPTED FOR PAYMENT, PROVIDED THE GUARDIAN SECURED AN ORDER FROM THE COURT CONFIRMING THE LOAN. THE GUARDIAN HAS OPPOSED HAVING THE LOAN CONFIRMED ON THE GROUNDS THAT THE BANK SHOULD NOT HAVE GRANTED IT DURING THE INCOMPETENCY OF THE VETERAN AND HAS NOW BROUGHT A REPLEVIN SUIT TO RECOVER THE CERTIFICATE FROM THE FIRST NATIONAL BANK OF SAINT PAUL, MINNESOTA.

A COPY OF A LETTER DATED NOVEMBER 4, 1937, FROM F. H. DELANEY, VICE PRESIDENT OF THE FIRST NATIONAL BANK OF SAINT PAUL, RELATIVE TO THE CASE, IS FORWARDED AND IT IS REQUESTED THAT THIS ADMINISTRATION BE ADVISED WHETHER THE BANK MAY BE AFFORDED ANY PROTECTION UNDER CIRCUMSTANCES AS SET FORTH. IN THIS CONNECTION YOUR ATTENTION IS INVITED TO THE CASE OF UNITED STATES EX REL. SIMONS V. HINES, ADM-R OF VETERANS' AFFAIRS, NO. 5964, 69 FED./2D) 229, DECIDED ON JANUARY 29, 1934, BY THE COURT OF APPEALS OF THE DISTRICT OF COLUMBIA, COPY OF WHICH IS HEREWITH TRANSMITTED. IT IS FURTHER REQUESTED THAT YOUR REPLY BE EXPEDITED IN VIEW OF THE FACT THAT THE SUIT FOR REPLEVIN IS SET FOR TRIAL ON DECEMBER 13, 1937.

THE LETTER TO YOU FROM THE VICE PRESIDENT OF THE FIRST NATIONAL BANK OF ST. PAUL IS AS FOLLOWS:

THIS BANK IS THE OWNER OF THE ADJUSTED-SERVICE CERTIFICATE LOAN OF THE ABOVE-NAMED VETERAN IN THE AMOUNT OF $792.00, WHICH NOTE IS DATED APRIL 9, 1931. THE LOAN HAS BEEN IN OUR HANDS SINCE THAT DATE AND IT WAS NOT UNTIL 1936 THAT WE WERE NOTIFIED THAT THE VETERAN WAS AN INCOMPETENT AT THE TIME THE LOAN WAS MADE. SINCE RECEIVING THIS NOTIFICATION, WE HAVE BEEN IN CONSTANT TOUCH WITH THE GUARDIAN, THE FIRST NATIONAL BANK OF MEMPHIS, AND HAVE EVEN ENGAGED LOCAL COUNSEL IN MEMPHIS IN AN ENDEAVOR TO OBTAIN A COURT ORDER APPROVING THE LOAN.

THIS LOAN CAME TO US WITH AN AFFIDAVIT MADE BY A. B. LEWIS, VICE PRESIDENT OF THE BANK OF COMMERCE AND TRUST COMPANY OF MEMPHIS, WHICH RECITES THAT THE VETERAN WAS NOT INCOMPETENT OR UNDER LEGAL GUARDIANSHIP. OUR CHECK FOR THE AMOUNT OF THE LOAN WAS NEGOTIATED BY THE VETERAN AND THE LOAN DULY REPORTED TO YOUR ADMINISTRATION. THERE HAS BEEN A SUCCESSION OF GUARDIANS IN THIS CASE, BUT NO ACTION WAS TAKEN BY ANY OF THEM TO NOTIFY US OF THE VETERAN'S INCOMPETENCY NOR TO RECOVER THE CERTIFICATE, UNTIL THE FIRST NATIONAL BANK OF MEMPHIS WAS APPOINTED. WHILE THEY APPARENTLY CONCEDE THE LOAN WAS MADE IN GOOD FAITH AND THAT WE TOOK REASONABLE PRECAUTIONS TO INSURE AGAINST LOANING TO AN INCOMPETENT, THEY FEEL THAT THEIR DUTY IS TO REQUIRE US TO SURRENDER THE VETERAN'S CERTIFICATE TO THEM --- IN FACT, THEY HAVE BROUGHT A REPLEVIN SUIT IN THIS COUNTY WHICH IS NOW SET FOR TRIAL ON DECEMBER 13. UNDER A STRICT INTERPRETATION OF THE LAW, WE PRESUME WE WILL BE REQUIRED TO RELINQUISH THE CERTIFICATE. UNFORTUNATELY WE CANNOT PRODUCE EVIDENCE THAT THE PROCEEDS OF THE LOAN WERE USED FOR NECESSITIES, WHICH MIGHT BE A LEGAL DEFENSE TO THEIR ACTION.

THE ATTITUDE OF THE VETERANS' ADMINISTRATION HAS ALWAYS BEEN TO PROTECT BANKS ON LOANS MADE IN GOOD FAITH, AND WE WOULD APPRECIATE ANY SUGGESTION FROM YOU AS TO HOW WE MIGHT PROTECT OURSELVES AGAINST LOSS IN THIS INSTANCE. IF THERE IS ANY POSSIBILITY OF OUR RECOVERING ON THE NOTE, WE WISH TO FOLLOW THE CORRECT PROCEDURE IN RELEASING THE CERTIFICATE TO THE GUARDIAN, IN ORDER THAT OUR CLAIM MIGHT BE PROPERLY PRESENTED TO THE GOVERNMENT. WE WOULD PREFER TO SURRENDER THE CERTIFICATE WITHOUT THE FORMALITY OF A COURT ORDER DIRECTING US TO DO SO, UNLESS SUCH ORDER WOULD BE HELPFUL TO US.

IN DECISION OF DECEMBER 16, 1936, A-81539, TO YOU, INVOLVING THE CASE OF ROY M. HEIN, A-2,400,238, IT WAS STATED AS FOLLOWS:

IT APPEARS TO BE A GENERAL RULE THAT WHERE AN INSANE PERSON IS UNDER GUARDIANSHIP ONE WHO DEALS WITH HIM IS BOUND BY THE CONSTRUCTIVE NOTICE OF THE JUDGMENT OF DISABILITY. BUT, LIKE MANY OTHER RULES, THE ONE JUST STATED IS NOT WITHOUT EXCEPTION--- THE EXCEPTION BEING CONTROLLED BY PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. * * *

THE FACTS IN THE INSTANT CASE CLEARLY SHOW THAT THE LENDING BANK MADE A REASONABLE EFFORT TO ESTABLISH THAT THE VETERAN MAKING APPLICATION FOR THE LOAN WAS NOT UNDER LEGAL DISABILITY TO EXECUTE THE NOTE; THAT THE TRANSACTION WAS ENTERED INTO WITH ENTIRE GOOD FAITH WITHOUT NOTICE OF THE INCAPACITY OF THE VETERAN; THAT ALTHOUGH THE VETERANS' ADMINISTRATION HAD OF RECORD THE LOAN MADE BY THE BANK AS WELL AS THE INCAPACITY OF THE VETERAN THE LENDING BANK WAS NOT NOTIFIED; AND THAT NONE OF THE SUCCESSIVE GUARDIANS, EXCEPT THE PRESENT ONE, HAS INTERPOSED ANY OBJECTION TO THE EXISTENCE OF THE UNPAID LOAN.

THE CONTROLLING STATUTE AUTHORIZED LOANS TO BE MADE TO THE VETERANS BOTH BY BANKS AND BY THE VETERANS' ADMINISTRATION. SECTION 313, AS AMENDED BY SECTION 4 OF THE ACT OF MAY 29, 1928, 45 STAT. 949, SPECIFICALLY RECOGNIZES THAT THE VETERANS' ADMINISTRATION. SECTION 313, AS AMENDED BY SECTION 4 OF THE ACT OF MAY 29, 1928, 45 STAT. 949, SPECIFICALLY RECOGNIZES THAT THE VETERANS' ADMINISTRATION MIGHT MAKE PAYMENTS UNDER THE ACT PRIOR TO NOTICE OF THE LEGAL INCAPACITY OF THE BENEFICIARY AND AUTHORIZES THAT "PRIOR TO THE RECEIPT OF NOTICE BY THE BUREAU THAT ANY SUCH PERSON ENTITLED TO PAYMENT IS UNDER SUCH LEGAL DISABILITY PAYMENT MAY BE MADE TO SUCH PERSON DIRECT.' WHILE SUCH PROTECTION IS NOT EXTENDED BY THE STATUTE TO LENDING BANKS THE LAW SPECIFICALLY AUTHORIZES BANKS TO MAKE LOANS TO VETERANS AND IN SUCH CIRCUMSTANCES SOME DEGREE OF PROTECTION FOR THE LENDING BANKS REASONABLY MAY BE INFERRED.

IN VIEW OF THE FACTS AND CIRCUMSTANCES DISCLOSED AND THE TERMS OF THE CONTROLLING STATUTE, IT IS THE VIEW OF THIS OFFICE THAT THE LENDING BANK SHOULD BE REIMBURSED THE AMOUNT OF THE LOAN PLUS ACCRUED INTEREST.

HOWEVER, AS IT WOULD APPEAR THAT THE LEGALITY OF THE LOAN MADE BY THE VETERAN WHILE UNDER LEGAL DISABILITY FOR WHICH THE BANK IS HOLDING HIS ADJUSTED-SERVICE CERTIFICATE AS SECURITY, MAY BE REQUIRED TO BE DETERMINED BY THE COURT IN THE SUIT IN REPLEVIN BROUGHT BY THE PRESENT GUARDIAN TO RECOVER THE CERTIFICATE, THE VETERANS' ADMINISTRATION WOULD NOT BE AUTHORIZED TO MAKE PAYMENT TO THE LENDING BANK PENDING THE OUTCOME OF THE COURT PROCEEDINGS.