A-94782, JUNE 20, 1938, 17 COMP. GEN. 1089

A-94782: Jun 20, 1938

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WAS ON NOTICE AT THE TIME OF THE ISSUANCE OF THE DUPLICATE CERTIFICATE THAT THE ORIGINAL WAS NOT LOST AS RECITED IN THE BOND GIVEN TO SECURE THE GOVERNMENT AGAINST LOSS ON THE ORIGINAL BUT WAS ACTUALLY IN POSSESSION OF ONE OF ITS FIELD OFFICES. THE BOND LIABILITY IS NEITHER REQUIRED BY STATUTE OR APPLICABLE REGULATIONS TO BE MADE RETROACTIVE NOR SO MADE BY ITS EXPRESS TERMS OR NECESSARY IMPLICATION. THE SURETY IS NOT LIABLE FOR ANY LOSS SUSTAINED BY THE GOVERNMENT THROUGH THE HYPOTHECATION OF THE ORIGINAL CERTIFICATE BY AN IMPOSTOR PRIOR TO THE EXECUTION AND APPROVAL OF THE BOND. ITS LIABILITY FOR LOSSES SUBSEQUENT THERETO IS NOT REMOVED BECAUSE THE GOVERNMENT IS PRECLUDED BY STATUTE FROM RECOVERING THE LOSS THROUGH THE ESTABLISHING OF A LIEN AGAINST THE ADJUSTED SERVICE CERTIFICATE OF THE VETERAN-PRINCIPAL.

A-94782, JUNE 20, 1938, 17 COMP. GEN. 1089

VETERANS' ADMINISTRATION - ADJUSTED SERVICE CERTIFICATES - GOVERNMENT LOSS THROUGH FRAUDULENT HYPOTHECATION - SURETY'S LIABILITY FOR LOSS PRIOR AND SUBSEQUENT TO EXECUTION AND APPROVAL OF INDEMNITY BOND WHERE THE VETERANS' ADMINISTRATION, THROUGH THE MAKING OF A LOAN ON A VETERAN'S ORIGINAL ADJUSTED-SERVICE CERTIFICATE, WAS ON NOTICE AT THE TIME OF THE ISSUANCE OF THE DUPLICATE CERTIFICATE THAT THE ORIGINAL WAS NOT LOST AS RECITED IN THE BOND GIVEN TO SECURE THE GOVERNMENT AGAINST LOSS ON THE ORIGINAL BUT WAS ACTUALLY IN POSSESSION OF ONE OF ITS FIELD OFFICES, AND THE BOND LIABILITY IS NEITHER REQUIRED BY STATUTE OR APPLICABLE REGULATIONS TO BE MADE RETROACTIVE NOR SO MADE BY ITS EXPRESS TERMS OR NECESSARY IMPLICATION, THE SURETY IS NOT LIABLE FOR ANY LOSS SUSTAINED BY THE GOVERNMENT THROUGH THE HYPOTHECATION OF THE ORIGINAL CERTIFICATE BY AN IMPOSTOR PRIOR TO THE EXECUTION AND APPROVAL OF THE BOND, BUT ITS LIABILITY FOR LOSSES SUBSEQUENT THERETO IS NOT REMOVED BECAUSE THE GOVERNMENT IS PRECLUDED BY STATUTE FROM RECOVERING THE LOSS THROUGH THE ESTABLISHING OF A LIEN AGAINST THE ADJUSTED SERVICE CERTIFICATE OF THE VETERAN-PRINCIPAL, OR BECAUSE ADJUSTED SERVICE PAYMENTS ARE SUBSEQUENTLY MADE THE VETERAN-PRINCIPAL IN CASES WHERE THERE EXISTS NO NEGLIGENCE OR SURROUNDING CIRCUMSTANCES JUSTIFYING THE WITHHOLDING OF SUCH PAYMENT UNTIL RECOVERY OF THE LOSS FROM THE SURETY OR OTHERWISE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JUNE 20, 1938:

YOUR LETTER OF MAY 6, 1938, IS AS FOLLOWS:

ADJUSTED SERVICE CERTIFICATE NO. 382,857 IN THE AMOUNT OF $511.00, EFFECTIVE JANUARY 1, 1925, WAS ISSUED TO FRANK BROWNING, A-1,352,577, AND FORWARDED TO HIM AT FORT SAM HOUSTON, TEXAS. ON AUGUST 10, 1931, A COMMUNICATION, WRITTEN IN BEHALF OF THE VETERAN, WAS ADDRESSED TO THIS ADMINISTRATION STATING THAT THE VETERAN HAD LOST HIS CERTIFICATE. THE VETERAN IN COMPLIANCE WITH THE REQUEST OF THIS ADMINISTRATION EXECUTED AN AFFIDAVIT TO THIS EFFECT ON SEPTEMBER 5, 1931, AND HE SUBSEQUENTLY SUBMITTED A BOND OF INDEMNITY DATED NOVEMBER 3, 1931, NAMING THE UNITED STATES FIDELITY AND GUARANTY COMPANY AS SURETY. DUPLICATE CERTIFICATE NO. 3,786,187 WAS ISSUED AND FORWARDED TO THE VETERAN ON NOVEMBER 19, 1931.

THE DUPLICATE CERTIFICATE WAS HYPOTHECATED BY THE VETERAN WITH THE OFFICE OF THIS ADMINISTRATION AT OKLAHOMA CITY, OKLAHOMA, FOR A LOAN OF $255.50 GRANTED NOVEMBER 25, 1931. ON JUNE 30, 1936, FOUR APPLICATIONS (FORMS 1701) WERE EXECUTED AND SUBMITTED TO THE OFFICE AT OKLAHOMA CITY, OKLAHOMA. AS THE APPLICATIONS ALL GAVE THE SAME ADDRESS, NAMELY, OKLAHOMA STATE PENITENTIARY, MCALESTER, OKLAHOMA, BUT VARIED IN THE NAME OF THE VETERAN, THEY WERE SUBMITTED TO THE CENTRAL OFFICE OF THIS ADMINISTRATION FOR EXAMINATION OF THE FINGERPRINTS. IN REVIEWING THE VETERAN'S RECORDS, IT WAS DISCOVERED THAT A LOAN OF $255.50 HAD BEEN GRANTED ON THE SECURITY OF THE ORIGINAL CERTIFICATE ON APRIL 15, 1931, BY THE VETERANS ADMINISTRATION, DALLAS, TEXAS, AND THAT CERTIFICATION FOR FINAL SETTLEMENT OF THE ORIGINAL CERTIFICATE HAD BEEN MADE BY THAT OFFICE UNDER ADMINISTRATIVE NO. 46,069, DATED JUNE 15, 1936. THE VETERANS ADMINISTRATION, DALLAS, TEXAS, WAS REQUESTED BY TELEGRAM DATED AUGUST 13, 1936, TO COMMUNICATE WITH THE TREASURY DEPARTMENT AND PLACE A CAVEAT AGAINST THE BONDS AND A STOP PAYMENT AGAINST THE CHECK. THAT OFFICE WAS ADVISED, HOWEVER, THAT REQUEST FOR THE STOPPAGE WAS RECEIVED TOO LATE TO BE EFFECTIVE, THE BONDS ALREADY HAVING BEEN PASSED FOR PAYMENT BY THE TREASURY DEPARTMENT.

WHILE THE FINGERPRINTS ON THE APPLICATIONS (FORMS 1701) SUBMITTED TO THE OFFICE AT OKLAHOMA CITY, OKLAHOMA, WERE FOUND TO BE IDENTICAL WITH THOSE OF THE VETERAN ON HIS APPLICATION FOR ADJUSTED COMPENSATION (WWC FORM NO. 1), THE FINGERPRINTS ON THE APPLICATION (FORM 1701) SUBMITTED FOR FINAL SETTLEMENT OF THE ORIGINAL CERTIFICATE WERE NOT IDENTICAL WITH THOSE OF THE VETERAN, AND THE CASE WAS, THEREFORE, REFERRED TO THE SECRET SERVICE DIVISION OF THE TREASURY DEPARTMENT. INVESTIGATION DISCLOSED THAT THE LOAN AND FINAL SETTLEMENT ON THE ORIGINAL CERTIFICATE WERE OBTAINED BY ONE RAY J. MCINTURF. THE CIRCUMSTANCES SURROUNDING THE MEANS WHEREBY THE ORIGINAL CERTIFICATE CAME INTO THE POSSESSION OF THE IMPOSTOR ARE SET FORTH IN THE REPORT DATED NOVEMBER 5, 1937, BY SECRET SERVICE AGENT IN CHARGE, JOHN E. OSBORN, REGARDING HIS CONTACT WITH THE VETERAN.

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

THE IMPOSTOR WAS APPREHENDED BY THE SECRET SERVICE AND WAS INDICTED ON NOVEMBER 4, 1937. THE SECRET SERVICE REPORT DATED NOVEMBER 12, 1937, STATES:

"* * * ON NOVEMBER 5, 1937, WHEN ARRAIGNED BEFORE THE FEDERAL JUDGE FOR THE NORTHERN JUDICIAL DISTRICT OF TEXAS, AT FORT WORTH, TEXAS, MCINTURF WAS SENTENCED BY JUDGE T. WHITFIELD DAVIDSON TO SERVE THREE YEARS IN THE U.S. PENITENTIARY AT LEAVENWORTH, KANSAS, ON THE FIRST COUNT, AND IN ADDITION WAS SENTENCED TO THREE YEARS ON EACH OF THE REMAINING FIVE COUNTS, SUSPENDED, TO RUN CONCURRENTLY.'

THE IMPOSTOR RAY J. MCINTURF WAS IDENTIFIED AS A VETERAN WHO WAS IN RECEIPT OF A PENSION OF $6.00 PER MONTH. PAYMENTS TO THE IMPOSTOR HAVE BEEN SUSPENDED AND THE AMOUNTS WITHHELD ARE BEING CREDITED TO HIS INDEBTEDNESS.

DEMAND WAS MADE ON THE UNITED STATES FIDELITY AND GUARANTY COMPANY, SURETY ON THE BOND OF INDEMNITY, FOR REIMBURSEMENT TO THE UNITED STATES FOR THE LOSS SUSTAINED ON THE ORIGINAL CERTIFICATE. THE SURETY HAS DENIED LIABILITY PRINCIPALLY ON THE GROUND THAT THE LOAN ON THE ORIGINAL CERTIFICATE CAUSING PART OF THE LOSS WAS NEGOTIATED PRIOR TO THE EXECUTION OF THE BOND OF INDEMNITY AND THE ISSUANCE OF THE DUPLICATE CERTIFICATE. IN CONNECTION WITH THE CLAIM THAT THE BONDS DO NOT COVER THESE LOSSES, YOUR ATTENTION IS INVITED TO THE OPINION OF THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF THE UNITED STATES OF AMERICA VS. STANLEY J. PATRYAS, NUMBER 445, OCTOBER TERM 1937, RENDERED FEBRUARY 28, 1938.

THE POSITION TAKEN BY THE SURETY IS ILLUSTRATED BY THE FOLLOWING PORTION OF ITS COMMUNICATION DATED JANUARY 13, 1938:

"* * * WE NOT ONLY FELT THAT THIS SORT OF CLAIM WAS NOT INTENDED TO BE COVERED BUT WE ARE SATISFIED THAT IN THIS INSTANCE THE BOND IS NOT LIABLE SINCE THE LOSS ON THE ORIGINAL CERTIFICATE ANTEDATED OUR BOND AND THE ISSUANCE OF THE DUPLICATE CERTIFICATE.

"ONE OF THE QUESTIONS OF GENERAL IMPORTANCE WHICH WE CONSIDERED WITH YOU HAD TO DO WITH THE ATTITUDE OF THE VETERANS' ADMINISTRATION AS REGARDS THE STATUS OF THE VETERAN'S LIABILITY WHEN EVIDENCE IS TOTALLY LACKING THAT HE WAS GUILTY OF ANY FRAUD OR CONNIVANCE IN CONNECTION WITH THE PROCUREMENT OF THE LOAN ON THE ORIGINAL CERTIFICATE WHEN IT LATER DEVELOPED THAT SUCH LOAN WAS OBTAINED BY AN IMPOSTOR.

"FROM A RECENT OPINION OF THE COMPTROLLER GENERAL I NOTED THE FOLLOWING OBSERVATIONS AND CONCLUSION FROM THE PECULIAR FACTS OF THE CASE UNDER CONSIDERATION:

" "THE VETERAN FURNISHED A BOND OF INDEMNITY TO PROTECT THE UNITED STATES FROM ANY LOSS ARISING OUT OF THE ISSUANCE OF THE ORIGINAL CERTIFICATE AND HE AS PRINCIPAL ON THE BOND IS PRIMARILY OR ULTIMATELY LIABLE FOR ANY LOSS INCURRED. SINCE IT APPEARS THAT THE FRAUDULENT LOAN WAS MADE POSSIBLE BY THE VETERAN'S FAILURE TO PROPERLY RETURN THE ORIGINAL CERTIFICATE TO YOUR ADMINISTRATION AND HIS SUBSEQUENT CARELESSNESS WHICH RESULTED IN ITS LOSS, THE MATTER MAY BE ADJUSTED BY CHARGING THE AMOUNT OF THE LOAN AGAINST THE VETERAN'S ADJUSTED-SERVICE CERTIFICATE, THE AMOUNT IN QUESTION APPEARING AS A LIEN AGAINST THE ADJUSTED-SERVICE CERTIFICATE WITHIN THE MEANING OF SECTION 7 OF THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, 49 STAT. 1101.

" "ACCORDINGLY, ON THE BASIS OF THE PRESENT RECORD YOU ARE ADVISED THAT RECLAMATION PROCEEDINGS ON THE INVOLVED CHECK WILL NOT BE DIRECTED BY THIS OFFICE.'

"WHAT, I MAY ASK, WOULD BE THE POSITION OF THE VETERANS' ADMINISTRATION IF IN THE CASE UNDER CONSIDERATION THE VETERAN HAD NOT BEEN CHARGEABLE WITH NEGLIGENCE? WOULD IT BE THE OPINION OF THE COMPTROLLER GENERAL AND THE POSITION OF THE VETERANS' ADMINISTRATION THAT THE PRINCIPAL WAS NOT LIABLE UNDER THE BOND TO REIMBURSE THE GOVERNMENT FOR THE LOAN MADE AN IMPOSTOR? IF THIS SHOULD BE THE CONCLUSION REACHED BY YOU COULD THERE BE ANY JUSTIFICATION FOR LOOKING TO THE SURETY ON THE INDEMNITY BOND ON ANY THEORY OR PRINCIPLE OF SURETYSHIP THAT WOULD RELIEVE THE PARTY PRIMARILY LIABLE UNDER THE BOND?

YOUR ADVICE IS, THEREFORE, REQUESTED AS TO WHETHER THE SURETY MAY BE CALLED UPON TO REIMBURSE THE GOVERNMENT FOR THE LOSS SUSTAINED IN THIS CASE WHERE A PART OF THE LOSS IS DUE TO A LOAN NEGOTIATED PRIOR TO THE EXECUTION OF THE BOND OF INDEMNITY. IN THE EVENT THAT THE SURETY MAY BE HELD LIABLE ONLY FOR THAT AMOUNT OF THE LOSS SUSTAINED SUBSEQUENT TO THE EXECUTION OF THE BOND, NAMELY, THE FINAL SETTLEMENT ON THE ORIGINAL CERTIFICATE, IT IS REQUESTED THAT YOU ADVISE THIS ADMINISTRATION WHETHER THE PRINCIPLE OF SURETYSHIP AS EXPOUNDED BY THE UNITED STATES FIDELITY AND GUARANTY COMPANY, NAMELY, THAT THE SURETY MAY NOT BE HELD LIABLE IF THE PRINCIPAL ON THE BOND IS RELIEVED, IS TO BE ADHERED TO BY THIS ADMINISTRATION AND WHETHER, THEREFORE, THE UNPAID BALANCE ON THE DUPLICATE CERTIFICATE OF THE VETERAN, WHO IS THE PRINCIPAL ON THE BOND OF INDEMNITY, IS TO BE APPLIED IN LIQUIDATION OF THE INDEBTEDNESS INCURRED ON THE ORIGINAL CERTIFICATE. SHOULD YOUR ANSWER TO THIS LAST QUESTION BE IN THE NEGATIVE, IT IS REQUESTED THAT YOU ADVISE WHETHER THE AMOUNT OF THE LOAN AND SETTLEMENT ON THE ORIGINAL CERTIFICATE MAY BE REMOVED AS A CHARGE FROM THE VETERAN'S ACCOUNT AND CERTIFICATION MADE IN FAVOR OF THE VETERAN FOR THE BALANCE DUE ON THE DUPLICATE CERTIFICATE. IT WILL BE APPRECIATED IF YOU WILL ALSO STATE WHETHER YOUR DECISION IN THIS CASE MAY BE APPLIED TO OTHER CASES INVOLVING SIMILAR FACTS AND CIRCUMSTANCES.

IN HIS AFFIDAVIT SUBMITTED AS EVIDENCE OF LOSS, ETC., OF HIS ADJUSTED- SERVICE CERTIFICATE THE VETERAN MADE STATEMENTS AS FOLLOWS RESPECTING THE LOSS OF HIS CERTIFICATE:

CERTIFICATE WAS LOST IN FORTH WORTH, TEXAS, ABOUT 1 YEAR AFTER RECEIVING SAME. HAVE NO KNOWLEDGE OF HOW IT WAS LOST. TRIED FOR LAST SEVERAL YEARS TO LOCATE SAME.

IN SECRET SERVICE REPORT OF AUGUST 26, 1937, THE AGENT STATED IN PERTINENT PART AS FOLLOWS:

I THEN QUESTION WILLIAM MCINTURF, BROTHER OF THE FORGER, WHO OWNS THE PROPERTY AT 1395 7TH VE., AND HE INFORMED ME THAT FOR THE PAST 16 YEARS HE HAS BEEN A CAR INSPECTOR FOR THE ROCK ISLAND RAILROAD; THAT HE HAS NEVER BEEN IN TROUBLE IN HIS ENTIRE LIFE. HE FURTHER STATED THAT HIS BROTHER, RAY, AND FRANK BROWNING DESERTED THE ARMY TOGETHER SOMETIME DURING 1926; THAT THEY BOTH CAME TO HIS HOME, AND STAYED ABOUT A WEEK; THAT HE, WILLIAM, FINALLY TALKED THEM OUT OF RUNNING AWAY, AND HAD THEM GIVE THEMSELVES UP; THAT HE TOOK THEM BOTH TO THE ARMY RECRUITING OFFICER AT DALLAS, TEXAS, WHEREUPON THEY WERE BOTH RETURNED TO THEIR ARMY BASE AT LAREDO, TEXAS. HE FURTHER TOLD ME THAT WHEN BROWNING LEFT, HE LEFT HIS ADJUSTED-SERVICE CERTIFICATE AT HIS, WILLIAM MCINTURF'S HOME; THAT IN 1931 HIS BROTHER, RAY, CAME TO HIS HOME OBTAINING THESE PAPERS IN QUESTION, AND THAT HE WARNED HIS BROTHER NOT TO ATTEMPT TO NEGOTIATE THEM.

FROM THE STATEMENT CONTAINED IN THAT PART OF THE SECRET SERVICE REPORT OF NOVEMBER 5, 1937, QUOTED IN YOUR LETTER, NAMELY,"HE (THE VETERAN) "HAD A SUSPICION" THAT THE SISTER HAD PURPOSELY FAILED TO FIND THE ASC BUT SUCH WAS ONLY A GUESS" AND FROM THE STATEMENT MADE BY THE VETERAN'S BROTHER AS INDICATED IN THAT PART OF THE SECRET SERVICE REPORT OF AUGUST 26, 1937, ABOVE-QUOTED, TO WIT,"THAT WHEN BROWNING LEFT, HE LEFT HIS ADJUSTED- SERVICE CERTIFICATE AT HIS, WILLIAM MCINTURF'S HOME," IT APPEARS QUITE CLEAR THAT THE VETERAN DID NOT MAKE PROPER DISCLOSURE AS TO THE LOSS OF HIS CERTIFICATE WHEN HE SUBMITTED HIS AFFIDAVIT AS EVIDENCE OF THE LOSS OF HIS CERTIFICATE AS MAY BE SEEN FROM THE STATEMENTS QUOTED FROM HIS AFFIDAVIT, SUPRA. IN VIEW OF THE REPORTED FACTS AND CIRCUMSTANCES, PARTICULARLY IN THAT THE VETERAN HAS FAILED TO ACCOUNT SATISFACTORILY FOR THE LOSS OF HIS ADJUSTED SERVICE CERTIFICATE, THERE APPEARS NO JUSTIFICATION FOR AUTHORIZING THE REMOVAL OF THE CHARGE AGAINST HIS ADJUSTED-SERVICE CERTIFICATE UNLESS AND UNTIL THERE HAS BEEN RECOVERED THROUGH RECLAMATION PROCEEDINGS OR OTHERWISE THE AMOUNT OF THE GOVERNMENT'S LOSS. THE AUTHORITY FOR ISSUING DUPLICATE ADJUSTED-SERVICE CERTIFICATES IS CONTAINED IN SECTION 705 OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, 45 STAT. 1561, WHICH PROVIDES AS FOLLOWS:

WHENEVER IT APPEARS TO THE DIRECTOR, BY EVIDENCE CLEAR AND SATISFACTORY TO HIM, THAT ANY ADJUSTED-SERVICE CERTIFICATE HAS, WITHOUT BAD FAITH UPON THE PART OF THE PERSON ENTITLED TO PAYMENT THEREON, BEEN LOST OR DESTROYED, AND SUCH ADJUSTED-SERVICE CERTIFICATE IS IDENTIFIED BY NUMBER AND DESCRIPTION, HE SHALL, UNDER SUCH REGULATIONS AND WITH SUCH RESTRICTIONS AS TO TIME AND RETENTION FOR SECURITY OR OTHERWISE AS HE MAY PRESCRIBE, ISSUE A DUPLICATE THEREOF OF LIKE VALUE IN ALL RESPECTS TO THE ORIGINAL CERTIFICATE AND SO MARKED AS TO SHOW THE ORIGINAL NUMBER OF THE CERTIFICATE LOST OR DESTROYED AND THE DATE THEREOF. THE LAWFUL HOLDER OF SUCH CERTIFICATE WHO MAKES APPLICATION FOR A DUPLICATE SHALL FILE IN THE UNITED STATES VETERANS' BUREAU A BOND IN A PENAL SUM OF THE FACE VALUE OF SUCH LOST OR DESTROYED CERTIFICATE, WITH TWO GOOD AND SUFFICIENT SURETIES, RESIDENTS OF THE UNITED STATES, TO BE APPROVED BY THE DIRECTOR, WITH CONDITION TO INDEMNIFY AND SAVE HARMLESS THE UNITED STATES FROM ANY CLAIM UPON SUCH LOST OR DESTROYED CERTIFICATE; EXCEPT THAT A DUPLICATE CERTIFICATE SHALL BE ISSUED WITHOUT THE REQUIREMENT OF A BOND WHEN IT IS SHOWN TO THE SATISFACTION OF THE DIRECTOR THAT THE ORIGINAL CERTIFICATE, (1) BEFORE DELIVERY TO THE VETERAN, HAS BEEN LOST, DESTROYED, WHOLLY OR IN PART, OR SO DEFACED AS TO IMPAIR ITS VALUE, AND (2) AFTER DELIVERY TO THE VETERAN HAS, WITHOUT BAD FAITH UPON THE PART OF THE PERSON ENTITLED TO PAYMENT THEREON, BEEN PARTIALLY DESTROYED OR DEFACED SO AS TO IMPAIR ITS VALUE, IS CAPABLE OF IDENTIFICATION, AND IS SURRENDERED BY SUCH PERSON TO THE VETERANS' BUREAU.

IN PURSUANCE OF THE STATUTE, SUPRA, THERE WERE ISSUED BY YOUR ADMINISTRATION THE FOLLOWING REGULATIONS RELATIVE TO THE ISSUANCE OF DUPLICATE ADJUSTED-SERVICE CERTIFICATES WITH BOND, INCORPORATED AS SECTION R-3703, REGULATIONS AND PROCEDURE, VETERANS' ADMINISTRATION:

ISSUANCE OF DUPLICATE ADJUSTED-SERVICE CERTIFICATE WITH BOND.--- AN INDEMNITY BOND WILL BE REQUIRED AS A PREREQUISITE TO THE ISSUANCE OF A DUPLICATE ADJUSTED-SERVICE CERTIFICATE IN ALL CASES WHERE THE CERTIFICATE WAS LOST AFTER RECEIPT BY THE VETERAN, OR AFTER RECEIPT BY THE VETERAN WAS DEFACED OR MUTILATED AND CANNOT BE IDENTIFIED TO THE SATISFACTION OF THE ADMINISTRATOR; PROVIDED THE LOSS, DEFACEMENT, OR MUTILATION WAS WITHOUT BAD FAITH ON THE PART OF THE VETERAN OR THE PERSON ENTITLED TO PAYMENT THEREON. THE BOND MUST BE IN THE MANNER AND FORM PRESCRIBED BY THE VETERANS' ADMINISTRATION AND FOR AN AMOUNT EQUAL TO THE FACE VALUE OF THE CERTIFICATE, WITH SURETY OR SURETIES RESIDENTS OF THE UNITED STATES AND SATISFACTORY TO THE ADMINISTRATOR, WITH CONDITION TO INDEMNIFY AND SAVE HARMLESS THE UNITED STATES FROM ANY CLAIM ON ACCOUNT OF SUCH CERTIFICATE. IF THE CERTIFICATE WAS DEFACED OR MUTILATED THE VETERAN OR PERSON ENTITLED TO PAYMENT THEREON WILL BE REQUIRED TO SURRENDER TO THE VETERANS' ADMINISTRATION THE CERTIFICATE OR SO MUCH THEREOF AS MAY REMAIN (JUNE 5, 1930).

THE BOND OF INDEMNITY FURNISHED IN THIS CASE TO SECURE THE ISSUANCE OF THE DUPLICATE CERTIFICATE, AFTER STATING THE NAMES OF THE PARTIES AND THE EXTENT OF THE OBLIGATION, STIPULATES THE FOLLOWING RECITALS AND CONDITIONS:

WHEREAS, AN ADJUSTED-SERVICE CERTIFICATE, NUMBER 382857, FURTHER IDENTIFIED BY NUMBER A-1,352,577, DATED 1-1, 1925, WAS ISSUED, PURSUANT TO THE WORLD WAR ADJUSTED COMPENSATION ACT, TO FRANK BROWNING, A VETERAN OF THE WORLD WAR;

WHEREAS, EVIDENCE OF THE LOSS, THEFT, DEFACING, MUTILATION, OR DESTRUCTION OF SAID CERTIFICATE, TOGETHER WITH REQUEST FOR A DUPLICATE OF SAID CERTIFICATE BY THE LAWFUL HOLDER, HAS BEEN SUBMITTED TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU; AND

WHEREAS, THE DIRECTOR OF THE UNITED STATES VETERANS' BUREAU, BY VIRTUE OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, REQUIRES THE PARTY THUS SITUATED TO GIVE A BOND OF INDEMNITY WITH SATISFACTORY SURETY TO THE UNITED STATES BEFORE THE RELIEF DESIRED WILL BE GRANTED, AND THE DIRECTOR OF THE UNITED STATES VETERANS' BUREAU HAVING ACCEPTED THE EVIDENCE SUBMITTED BY THE APPLICANT AS SUFFICIENT TO WARRANT ISSUANCE OF A DUPLICATE OF SAID CERTIFICATE UPON SAID APPLICANT GIVING A PROPER BOND OF INDEMNITY;

NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, THAT IF THE ABOVE-BOUNDEN OBLIGORS, THEIR HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS, OR ASSIGNS, OR ANY OF THEM, SHALL PAY OR CAUSE TO BE PAID TO THE UNITED STATES ANY AND ALL SUMS WHATEVER WHICH THE UNITED STATES MAY BE CALLED UPON TO PAY, INCLUDING INTEREST AND COSTS, ON ACCOUNT OF THE ESTABLISHMENT OF ANY VALID ADVERSE CLAIM TO THE PROCEEDS OF THE ABOVE DESCRIBED ADJUSTED-SERVICE CERTIFICATE OR ANY PART THEREOF, AND SHALL WELL AND TRULY INDEMNIFY AND SAVE HARMLESS THE UNITED STATES FROM ANY CLAIM ON ACCOUNT OF SAID ADJUSTED-SERVICE CERTIFICATE AND FROM ALL DAMAGE, LOSS, COSTS, CHARGES, AND EXPENSES WHICH THE UNITED STATES MAY SUSTAIN, INCUR, OR BE LIABLE FOR IN CONSEQUENCE OF ANY SUCH CLAIM OR OF THE GRANTING OF RELIEF ON ACCOUNT OF SAID ADJUSTED-SERVICE CERTIFICATE, WITH INTEREST FROM THE DATE OF SUCH PAYMENT, AND ANY AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH, THEN THIS OBLIGATION TO BE VOID; OTHERWISE TO BE AND REMAIN IN FULL FORCE AND EFFECT.

WHILE THERE APPEARS NO LEGAL OBSTACLE TO PREVENT PARTIES FROM ENTERING INTO CONTRACTS OF INSURANCE OR OF BONDS OF INDEMNITY TO PROTECT AGAINST A LOSS THAT MAY HAVE ALREADY OCCURRED SUCH CONTRACTS ARE UNDERSTOOD AS AFFORDING PROTECTION AGAINST RISKS WHICH ARE UNKNOWN TO THE PARTIES AT THE TIME. HERE, HOWEVER, THE VETERANS' ADMINISTRATION WAS ON NOTICE THAT A LOAN OF $255.50 HAD BEEN GRANTED UPON THE SECURITY OF THE ORIGINAL CERTIFICATE AT THE TIME THE INDEMNITY BOND WAS SUBMITTED TO SECURE THE ISSUANCE OF THE DUPLICATE CERTIFICATE--- THUS PLACING THE VETERANS' ADMINISTRATION IN A POSITION OF HAVING ACTUAL NOTICE THAT THE ORIGINAL CERTIFICATE WAS NOT LOST AS RECITED IN THE BOND, BUT WAS ACTUALLY IN THE POSSESSION OF ONE OF ITS FIELD OFFICES.

IT IS WELL SETTLED THAT A BOND IS NOT RETROACTIVE UNLESS THE CONTRACT SO STIPULATES. A CAREFUL READING OF THE STATUTE, SUPRA, AS WELL AS THE APPLICABLE REGULATIONS ABOVE-QUOTED, WHICH PRESCRIBES THE CONDITIONS UNDER WHICH A BOND OF INDEMNITY IS REQUIRED TO SECURE THE ISSUANCE OF A DUPLICATE ADJUSTED-SERVICE CERTIFICATE FAILS TO DISCLOSE ANY INTENT OR PURPORT THAT SUCH A BOND IS TO COVER LOSSES WHICH MAY ALREADY HAVE OCCURRED. THE BOND EXECUTED IN THIS CASE DOES NOT, EXPRESSLY OR BY NECESSARY IMPLICATION, PROVIDE FOR INDEMNITY FOR LOSSES ALREADY INCURRED AT THE TIME OF THE EXECUTION AND ACCEPTANCE OF THE BOND. THAT IS TO SAY, THE BOND HERE IS NOT EXPRESSLY MADE RETROACTIVE; NEITHER BY NECESSARY IMPLICATION ARE ITS PROVISIONS RETROACTIVELY EFFECTIVE. IN SUCH CIRCUMSTANCES THERE APPEARS NO LEGAL BASIS FOR HOLDING THAT THERE IS LIABILITY UPON THE SURETY COMPANY IN THIS CASE FOR THAT PART OF THE LOSS SUSTAINED BY THE GOVERNMENT UPON THE ORIGINAL CERTIFICATE WHICH OCCURRED PRIOR TO THE EXECUTION AND APPROVAL OF THE BOND. CF. 17 COMP. GEN. 510.

WITH RESPECT TO THE PRINCIPLE OF SURETYSHIP EXPOUNDED BY THE SURETY COMPANY, IT MAY BE SAID THAT THE RELEASE OF PAYMENT UNDER THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, 49 STAT. 1099, TO A VETERAN WHO MAY BE A PRINCIPAL UPON AN INDEMNITY BOND OF THE CLASS HERE INVOLVED AND WHO IS NOT HELD RESPONSIBLE FOR THE GOVERNMENT'S LOSS UPON THE ORIGINAL CERTIFICATE, IN NOWISE RELEASES HIM FROM LIABILITY UPON THE BOND. NEITHER IS THE SURETY COMPANY RELIEVED FROM LIABILITY BY ANY SUCH PAYMENT TO THE VETERAN- PRINCIPAL IS AT ALL TIMES LIABLE UPON THE BOND, BUT WHERE NO VALID LIEN MAY BE ESTABLISHED AGAINST HIS ADJUSTED SERVICE CERTIFICATE FOR THE GOVERNMENT'S LOSS THE GOVERNMENT IS PRECLUDED FROM RECOVERING THE LOSS FROM THE ADJUSTED-SERVICE CERTIFICATE OF THE VETERAN-PRINCIPAL BY REASON OF THE PROVISIONS OF 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.

THE STATUTE REFERRED TO IN THE LAW JUST QUOTED, IS, IN PERTINENT PART, AS FOLLOWS:

SEC. 3. 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. * * *

SEE, ALSO, SECTION 308 (A) OF THE WORLD WAR ADJUSTED COMPENSATION ACT, 44 STAT. 827, READING AS FOLLOWS:

SEC. 3 (A) SECTION 308 OF SUCH ACT IS AMENDED, TO TAKE EFFECT AS OF MAY 19, 1924, TO READ AS FOLLOWS:

"SEC. 308. NO SUM PAYABLE UNDER THIS ACT TO A VETERAN OR HIS DEPENDENTS, OR TO HIS ESTATE, OR TO ANY BENEFICIARY NAMED UNDER TITLE V, NO ADJUSTED- SERVICE CERTIFICATE, AND NO PROCEEDS OF ANY LOAN MADE ON SUCH CERTIFICATE SHALL BE SUBJECT TO ATTACHMENT, LEVY, OR SEIZURE UNDER ANY LEGAL OR EQUITABLE PROCESS, OR TO NATIONAL OR STATE TAXATION, AND NO DEDUCTIONS ON ACCOUNT OF ANY INDEBTEDNESS OF THE VETERAN TO THE UNITED STATES SHALL BE MADE FROM THE ADJUSTED-SERVICE CREDIT OR FROM ANY AMOUNTS DUE UNDER THIS ACT.'

WITH RESPECT TO THE DOCTRINE OF SUBROGATION IN CASES OF THIS CLASS IT WAS HELD IN 15 COMP. GEN. 966, AS FOLLOWS, QUOTING FROM THE SYLLABUS:

A SURETY ON A VETERAN'S BOND EXECUTED AS A BASIS FOR ISSUANCE OF A DUPLICATE ADJUSTED-SERVICE CERTIFICATE HAS NO REMEDY BY WAY OF SUBROGATION OR OTHERWISE UNDER THE ADJUSTED COMPENSATION PAYMENT ACT OF 1936, 49 STAT. 1099, TO RECOVER THE AMOUNT PAID TO INDEMNIFY THE UNITED STATES FOR LOSS SUSTAINED BY REASON OF LOANS FRAUDULENTLY OBTAINED BY THE VETERAN IN CONNECTION WITH SAID DUPLICATE CERTIFICATE.

SEE, ALSO, TO THE SAME EFFECT, 7 COMP. GEN. 136; ID. 335; 12 ID. 491. COMPARE, ALSO, 7 ID. 305; 17 ID. 77.

IN VIEW OF THE FOREGOING EVERY EFFORT SHOULD BE MADE TO OBTAIN FROM THE SURETY COMPANY REIMBURSEMENT FOR THE GOVERNMENT'S LOSS UPON THE ORIGINAL CERTIFICATE INCURRED SUBSEQUENT TO THE EXECUTION AND APPROVAL OF THE BOND. IF INDEMNIFICATION IS NOT MADE FORTHWITH THE MATTER SHOULD BE REFERRED TO THIS OFFICE FOR PROCEEDING UNDER THE PROVISIONS OF SECTION 236, REVISED STATUTES, AS AMENDED BY SECTION 305 OF THE BUDGET AND ACCOUNTING ACT OF JUNE 10, 1921, 42 STAT. 42.

THE HOLDING HEREIN RESPECTING THE MATTER OF LIABILITY UNDER INDEMNITY BONDS GIVEN TO SECURE THE ISSUANCE OF DUPLICATE ADJUSTED SERVICE CERTIFICATES IS FOR APPLYING TO OTHER CASES INVOLVING SIMILAR FACTS AND CIRCUMSTANCES.