B-195674.OM, AUG 13, 1980

B-195674.OM: Aug 13, 1980

Additional Materials:

Contact:

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

 

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

LEGAL LIABILITY RESTS SOLELY ON THE PAYEES OF VOLUNTARY ALLOTMENTS OF PAY WHO HAVE RECEIVED ERRONEOUS PAYMENTS OF SUCH ALLOTMENTS WHEN THE MEMBER WAS NOT AT FAULT OR DID NOT BENEFIT FROM SUCH PAYMENTS. 33 COMP.GEN. 309. HE HAD NO APPARENT REASON TO SUSPECT THAT THE NAVY WAS ERRONEOUSLY CONTINUING PAYMENT TO THE BANK. THE MEMBER DID RECEIVE A BENEFIT FROM SOME OF THE PAYMENTS AND IS THUS LIABLE FOR THESE PAYMENTS. INDICATES THE MEMBER'S PETITION WAS FILED SEPTEMBER 12. THE MEMBER WAS DISCHARGED ON NOVEMBER 10. THE PAYMENTS MADE TO HFC VIA THE BANK BEFORE THE MEMBER FILED FOR AND WAS DISCHARGED IN BANKRUPTCY INURED TO THE MEMBER'S BENEFIT BY REDUCING HIS DEBT. HE IS LIABLE FOR THE PAYMENTS AND THE MEMBER'S REQUEST FOR WAIVER MAY PROPERLY BE CONSIDERED.

B-195674.OM, AUG 13, 1980

PRECIS-UNAVAILABLE

ASSOCIATE DIRECTOR, FGMSD - CLAIMS GROUP (ROOM 5858)

RETURNED. IN ANSWER TO YOUR QUESTION REGARDING THE MEMBER'S LIABILITY FOR ERRONEOUS ALLOTMENT PAYMENTS, AS A GENERAL RULE, LEGAL LIABILITY RESTS SOLELY ON THE PAYEES OF VOLUNTARY ALLOTMENTS OF PAY WHO HAVE RECEIVED ERRONEOUS PAYMENTS OF SUCH ALLOTMENTS WHEN THE MEMBER WAS NOT AT FAULT OR DID NOT BENEFIT FROM SUCH PAYMENTS. 33 COMP.GEN. 309, 313 (RULE 2) (1954); 37 COMP.GEN. 218 (1957); B-191945-O.M., MARCH 2, 1979.

THE RECORD IN THE IMMEDIATE CASE SHOWS THAT KEITH C. WALL, A FORMER MEMBER OF THE UNITED STATES NAVY, TOOK ALL OF THE NECESSARY STEPS IN FEBRUARY 1975 TO TERMINATE, AFTER THE FEBRUARY PAYMENT, THE $55 MONTHLY ALLOTMENT TO MECHANICS NATIONAL BANK OF BURLINGTON, NEW JERSEY, FOR PAYMENT TO HOUSEHOLD FINANCE COMPANY (HFC), THE MEMBER'S CREDITOR. ALTHOUGH THE NAVY DID NOT STOP PAYMENT OF THE ALLOTMENT TO THE BANK UNTIL DISCOVERY OF THE ERROR AFTER THE APRIL 1976 PAYMENT, THE NAVY DID STOP DEDUCTIONS FROM THE MEMBER'S PAYCHECK AS OF MARCH 1975. SINCE THE MEMBER'S PAYCHECK THEN INCREASED IN THE AMOUNT OF THE ALLOTMENT, HE HAD NO APPARENT REASON TO SUSPECT THAT THE NAVY WAS ERRONEOUSLY CONTINUING PAYMENT TO THE BANK. THE NAVY ACKNOWLEDGES ITS FAULT IN HAVING FAILED TO STOP PAYMENT TO THE BANK.

HOWEVER, THE MEMBER DID RECEIVE A BENEFIT FROM SOME OF THE PAYMENTS AND IS THUS LIABLE FOR THESE PAYMENTS. IN THIS REGARD, WE NOTE AN INACCURACY IN THE STATEMENT OF FACTS IN THE SUBMISSION. THE MEMBER STATED IN HIS APRIL 23, 1976 REQUEST FOR WAIVER THAT HE FILED A PETITION FOR BANKRUPTCY IN JANUARY 1975; HOWEVER, THE BANKRUPTCY COURT'S ORDER FOR FIRST MEETING OF CREDITORS, MADE A PART OF THIS FILE, INDICATES THE MEMBER'S PETITION WAS FILED SEPTEMBER 12, 1975. TELEPHONE CONVERSATIONS WITH THE COURT CLERK AND THE MEMBER'S ATTORNEY CONFIRMED THE SEPTEMBER 12, 1975 FILING DATE. THE MEMBER WAS DISCHARGED ON NOVEMBER 10, 1975.

THE PAYMENTS MADE TO HFC VIA THE BANK BEFORE THE MEMBER FILED FOR AND WAS DISCHARGED IN BANKRUPTCY INURED TO THE MEMBER'S BENEFIT BY REDUCING HIS DEBT. SINCE THE MEMBER RECEIVED THIS BENEFIT, HE IS LIABLE FOR THE PAYMENTS AND THE MEMBER'S REQUEST FOR WAIVER MAY PROPERLY BE CONSIDERED. B-191945-O.M., SUPRA. SINCE THE CLAIMS GROUP HAS NOT DETERMINED WHETHER WAIVER SHOULD BE GRANTED, WE EXPRESS NO OPINION AS TO THE PROPRIETY OF WAIVER. HOWEVER, WE DO NOTE THAT THERE IS NO INDICATION AS TO WHETHER THE MEMBER RECEIVED FINANCIAL STATEMENTS FROM HIS BANK OR FROM HFC SHOWING THAT PAYMENTS WERE CONTINUING. IT IS OUR VIEW THAT AN EXPLANATION REGARDING THIS MATTER WOULD BE APPROPRIATE IN CONSIDERING THE REQUEST FOR WAIVER.

THE PAYMENTS MADE AFTER THE FILING FOR BANKRUPTCY APPEAR NOT TO BE FOR WAIVER CONSIDERATION SINCE THE MEMBER DID NOT RECEIVE A BENEFIT FROM THESE PAYMENTS. A DISCHARGE IN BANKRUPTCY RELEASES A BANKRUPT FROM ALL OF HIS PROVABLE DEBTS WITH CERTAIN EXCEPTIONS NOT RELEVANT HERE (SEE 11 U.S.C. SEC. 35 (1976)), AND DISABLES CREDITORS FROM ENFORCING THEIR CLAIMS. WAGNER V. UNITED STATES, 573 F.2D 447, 453 (7TH CIR. 1978). THUS, IF MR. WALL WAS DISCHARGED FROM HIS DEBT TO HFC, LIABILITY FOR THE PAYMENTS MADE AFTER THE BANKRUPTCY PROCEEDINGS RESTS WITH HFC. SEE B-191945-O.M., SUPRA.

IN THAT REGARD THE FILING OF A VOLUNTARY PETITION OPERATES AS AN ADJUDICATION. 11 U.S.C. SEC. 41(F) (1976). THE SUBSEQUENT DISCHARGE IN BANKRUPTCY RELATES BACK TO THE DATE OF ADJUDICATION. IN RE FELLOWS, 43 F.2D 122 (N.D. OKLA. 1930); MABRY V. BENEFICIAL FINANCE COMPANY OF LOUISIANA, 215 SO. 2D 192 (LA. CT. APP. 1968); COLLIER ON BANKRUPTCY (14TH ED. 1978) SEC. 17.30. THUS, PAYMENTS MADE TO HFC VIA THE BANK AFTER THE MEMBER'S FILING FOR BANKRUPTCY ON SEPTEMBER 12, 1975, DID NOT INURE TO HIS BENEFIT AND, CONSEQUENTLY, APPEAR NOT TO BE FOR WAIVER CONSIDERATION, SINCE HE HAS NO LEGAL LIABILITY FOR THE DEBT.

OUR CONCLUSION THAT THE MEMBER IS NOT LIABLE FOR PAYMENT MADE AFTER HIS FILING FOR BANKRUPTCY IS BASED ON THE ASSUMPTION THAT HFC WAS LISTED AS A CREDITOR IN AND NOTIFIED OF THE BANKRUPTCY PROCEEDINGS. IF IT IS DETERMINED THAT THE MEMBER FAILED TO SCHEDULE HFC AS A CREDITOR, THE DISCHARGE WOULD BE INOPERATIVE AND INEFFECTIVE AS TO HFC. SEE WAGNER V. UNITED STATES, SUPRA. IF THAT WERE THE CASE, THE PAYMENTS AFTER THE MEMBER'S DISCHARGE WOULD HAVE INURED TO HIS BENEFIT, AND THE MEMBER WOULD BE LIABLE, AND SUCH PAYMENTS WOULD BE FOR WAIVER CONSIDERATION PURSUANT TO HIS REQUEST.

ACCORDINGLY, WE ARE RETURNING THE FILE FOR A CONSIDERATION OF WAIVER IN ACCORDANCE WITH THE ABOVE, CONTINGENT UPON YOUR DETERMINATION OF (1) WHETHER THE MEMBER RECEIVED FINANCIAL STATEMENTS FROM HIS BANK OR HFC LISTING CONTINUED PAYMENTS WHICH WOULD PUT THE MEMBER ON NOTICE AS TO THE ERROR, AND (2) WHETHER HFC WAS LISTED AS A CREDITOR IN THE BANKRUPTCY PROCEEDINGS WHICH WOULD MAKE THE DISCHARGE IN BANKRUPTCY OPERATIVE AS TO HFC. IN THIS REGARD, WE HAVE ALREADY REQUESTED THE BANKRUPTCY COURT CLERK TO FORWARD COPIES OF THOSE PARTS OF THE BANKRUPTCY PROCEEDING RECORD WHICH INDICATE THE CREDITORS LISTED BY THE MEMBER. WE SHALL FORWARD THIS INFORMATION TO YOU FOR CONSIDERATION UPON RECEIPT.

COMPTROLLER GENERAL:

HEREWITH IS THE FILE OF MR. KEITH A. WALL, A FORMER MEMBER OF THE U. S. NAVY, RELATING TO A REQUEST FOR WAIVER UNDER THE AUTHORITY OF 10 U.S.C. 2774 OF ERRONEOUS ALLOTMENT PAYMENTS. A QUESTION HAS ARISEN CONCERNING THE LIABILITY OF THE FORMER MEMBER FOR SOME OR ALL OF THE ERRONEOUS PAYMENTS.

MR. WALL FILED A PETITION FOR VOLUNTARY BANKRUPTCY IN JANUARY 1975, AND REQUESTED TERMINATION OF A $55 MONTHLY ALLOTMENT AFTER FEBRUARY 1975. THE ALLOTMENT WAS PAYABLE TO THE MECHANICS NATIONAL BANK OF BURLINGTON, NEW JERSEY, AND WAS IN TURN FORWARDED BY THE BANK TO HOUSEHOLD FINANCE CORPORATION FOR REPAYMENT OF A LOAN. WHILE THE DEDUCTIONS FOR THE ALLOTMENT WERE PROPERLY STOPPED ON THE MEMBER'S PAY RECORD AFTER FEBRUARY 1975, THROUGH ADMINISTRATIVE ERROR THE ALLOTMENTS CONTINUED TO BE RELEASED TO THE BANK THROUGH APRIL 1976, CREATING AN OVERPAYMENT OF $770.

IN B-191945-O.M., MARCH 2, 1979, WE HELD A MEMBER LIABLE FOR AN UNAUTHORIZED ALLOTMENT PAYMENT WHICH INURED TO HIS BENEFIT BY REDUCING HIS DEBTS, SINCE THE PAYMENT WAS ISSUED PRIOR TO THE TIME THE MEMBER FILED FOR AND WAS DISCHARGED OF THOSE DEBTS IN BANKRUPTCY. HOWEVER, IN THIS CASE THE MEMBER FILED FOR BANKRUPTCY IN JANUARY 1975 AND WAS DISCHARGED IN SEPTEMBER 1975. THE ERRONEOUS ALLOTMENT PAYMENTS, WHICH BEGAN IN MARCH 1975, WERE ALL ISSUED AFTER HE FILED THE BANKRUPTCY AND SOME WERE ISSUED AFTER HE WAS DISCHARGED. THEREFORE, THE QUESTION ARISES AS TO WHETHER HE IS LIABLE FOR ALL OR A PORTION OF THE OVERPAYMENTS, OR WHETHER THE PAYEE OF THE ERRONEOUS ALLOTMENTS IS LIABLE TO MAKE REFUND.

IN VIEW OF THE ABOVE, THE MATTER IS SUBMITTED FOR YOUR CONSIDERATION AND INSTRUCTIONS.