B-47882 June 11, 1945

B-47882: Jun 11, 1945

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Secretary: Reference is made to a letter dated July 6. No such services were rendered. The accepted rule is the interest is allowed by the courts under the common law as damages for the detention of money or of property to which the claimant properly is entitled where the debtor has failed or refused to make payment of an indebtedness after an appropriate demand for payment has been made. Fraud is involved in the disbursements which have been made. The rule is that the interest is recoverable from the dates the fraudulent payments were made. The rate of interest on obligations of the type here involved is not fixed by statute and. It is appropriate for the court to apply the legal rate of interest of the State wherein the vouchers were paid.

B-47882 June 11, 1945

The Honorable, The Secretary of War,

Re: Claim Against Lieutenant Colonel John W. Thompson, for $1,314, plus interest, representing the loss sustained by the Government due to irregularities in certifying vouchers for payment of wages by the New York National Guard

My dear Mr. Secretary:

Reference is made to a letter dated July 6, 1945, from Brigadier General R.P. Hueper, USA, Acting Fiscal Director (file No. SPFEU 333.1/321558 New York x 201 Thompson, John W.), in reply to the letter of March 21, 1945, requesting that appropriate administrative action be taken to require the doctor, Lieutenant Colonel John B. Thompson, to arrange for satisfying his indebtedness to the United States as certified by General Accounting Office settlement No US-13236, dated January 9, 1945, in the basic sum of $1,314, representing the loss sustained by the United States as a result of certain irregularities on the part of the debtor -- while serving as quartermaster at Madison Barracks, New York -- in certifying a number of vouchers for the payment of wages to laborers and carpenters for repair services purportedly furnished the New York National Guard at Pine Camp, New York, during the period from May 2 to June 23, 1930, when, in fact, no such services were rendered. The said letter of July 6, 1945, questions the legality of the inclusion of interest in said claim and of the application on the interest account of the recovered amount of one hundred eighty six dollars (186) instead of applying it to reduce the principal indebtedness resulting from the overpayments," and requests" citation to the legal authority relied upon."

The accepted rule is the interest is allowed by the courts under the common law as damages for the detention of money or of property to which the claimant properly is entitled where the debtor has failed or refused to make payment of an indebtedness after an appropriate demand for payment has been made, but where, as here, fraud is involved in the disbursements which have been made, the rule is that the interest is recoverable from the dates the fraudulent payments were made. See United States v. North Carolina, 136 U.S. 211, 216; New Amsterdam Casualty Co. v. United States Shipping Board, 16, F. 2d 847, 852, and the cases cited therein; United States v. United States Fidelity and Guaranty Co., 236, U.S. 512, 530; The Ship Construction Company, Inc. v. United States, 91 C. Cls 419; Enright & Fletcher v. United States, 73 C. Cls. 416. Cf. United States v. Perdier, 164 U.S. 213; Billings v. United States, 232 U.S. 261; and the recent cases of American Surety Company of New York v. First National Bank in West Union, 57 F. Supp. 355, and Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 85 S. Ct. 895.

The rate of interest on obligations of the type here involved is not fixed by statute and, in such circumstances, it is appropriate for the court to apply the legal rate of interest of the State wherein the vouchers were paid. Royal Indemnity Co. v. United States, 313 U.S. 289, 297. The rate of interest in the State of New York where the involved vouchers were executed and paid is six per cent per annum.

Also, it is the generally accepted rule that amounts received in partial liquidation of an indebtedness are for application first to the accrued interest due from the dates of payment and the balance, if any, to principal. See Story v. Livingston, 13 Pet. 359, 370; Helvering v. Drier, 79 F. 2d 501; Barker v. Sagruder, 95 F. 2d 122; also, see United States v. United States Fidelity and Guaranty Co. 236 U.S. 512; Jones v. United States, 258 U.S. 40, 49; United States v. Rodiek, 120 F. 2d. 760; United States v. Miller, 317 U.S. 369.

In view of the foregoing, it appears that the settlement action taken under the aforesaid General Accounting Office certificate of settlement No. US-13236 is correct. Accordingly, it again is requested that appropriate administrative action be taken to require the debtor to arrange for satisfying his liability to the United States and that the General Accounting Office be advised of the action taken. Also, it would seem to the best interest of the debtor that prompt arrangements be made for the liquidation of the this indebtedness since interest at the rate of six per cent per annum is continuing to accrue on the unpaid balance.

Respectfully,

(Signed) Frank Y. Yates Assistant Comptroller General of the United States