B-75959, JULY 7, 1948, 28 COMP. GEN. 12

B-75959: Jul 7, 1948

Additional Materials:

Contact:

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

 

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

1948: REFERENCE IS MADE TO A LETTER DATED APRIL 28. IS LIABLE AS SURETY ON THE BOND OF INDEMNITY FURNISHED BY ALBERT H. CONCERNING WHICH YOUR ADVICE IS REQUESTED. WAS ISSUED TO THE VETERAN IN THE AMOUNT OF $1. WHEREIN HE STATED HIS CERTIFICATE WAS DESTROYED WITH WASTEPAPER. 300 WAS ISSUED TO THE VETERAN. EFFORTS WERE MADE TO LOCATE THE VETERAN FOR THE PURPOSE OF OBTAINING REFUND. PROVED UNSUCCESSFUL AND THE WHEREABOUTS OF THE VETERAN IS AT PRESENT UNKNOWN. NO DEMAND WAS MADE UPON THE SURETY ON THE BOND OF INDEMNITY FOR PAYMENT OF THE LOSS SUSTAINED BY REASON OF THE ILLEGAL LOAN OBTAINED ON THE ORIGINAL ADJUSTED SERVICE CERTIFICATE UNTIL JANUARY 29. THE HARTFORD ACCIDENT AND INDEMNITY COMPANY WAS ADVISED THAT THE INDEBTEDNESS ON ACCOUNT OF THE ILLEGAL LOAN.

B-75959, JULY 7, 1948, 28 COMP. GEN. 12

VETERANS' ADMINISTRATION - ADJUSTED SERVICE CERTIFICATES - INTEREST ON UNLAWFUL LOANS WHERE A VETERAN, AFTER ISSUANCE OF A DUPLICATE ADJUSTED SERVICE CERTIFICATE SECURED BY AN INDEMNITY BOND, OBTAINED LOANS ON THE ORIGINAL AND DUPLICATE CERTIFICATES IN A COMBINED AMOUNT GREATER THAN THE FACE VALUE OF THE DUPLICATE CERTIFICATE, THE AMOUNT OTHERWISE DUE THE VETERAN (FACE VALUE OF CERTIFICATE MINUS THE AUTHORIZED LOAN WITH INTEREST) PURSUANT TO THE ADJUSTED COMPENSATION PAYMENT ACT, 1936, UPON DEMAND FOR PAYMENT FROM THE SURETY, SHOULD BE SET OFF AGAINST THE AUTHORIZED LOAN INDEBTEDNESS WITH INTEREST AS OF THE EFFECTIVE DATE OF SUCH ACT, AND ANY BALANCE DUE SHOULD DRAW INTEREST UNTIL PAID, IRRESPECTIVE OF ANY DELAY IN NOTIFYING THE VETERAN OR HIS SURETY OF THE BALANCE DUE.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JULY 7, 1948:

REFERENCE IS MADE TO A LETTER DATED APRIL 28, 1948, FROM THE ACTING ADMINISTRATOR, AS FOLLOWS:

A QUESTION HAS ARISEN AS TO THE PROPER METHOD OF COMPUTING THE AMOUNT OF LOSS SUSTAINED BY THE GOVERNMENT, BY REASON OF AN ILLEGAL LOAN TRANSACTION, FOR WHICH THE HARTFORD ACCIDENT AND INDEMNITY COMPANY, HARTFORD 15, CONNECTICUT, IS LIABLE AS SURETY ON THE BOND OF INDEMNITY FURNISHED BY ALBERT H. EZELL, A-4,012,883, FOR THE PURPOSE OF OBTAINING A DUPLICATE ADJUSTED SERVICE CERTIFICATE, CONCERNING WHICH YOUR ADVICE IS REQUESTED.

AN ADJUSTED SERVICE CERTIFICATE, NO. 3,207,705, EFFECTIVE MAY 1, 1927, WAS ISSUED TO THE VETERAN IN THE AMOUNT OF $1,570. ON SEPTEMBER 11, 1929, THE VETERAN EXECUTED FORM 6920, AFFIDAVIT-SUBMITTED AS EVIDENCE OF LOSS, DESTRUCTION OR DEFACEMENT OF ADJUSTED SERVICE CERTIFICATE, WHEREIN HE STATED HIS CERTIFICATE WAS DESTROYED WITH WASTEPAPER. UPON RECEIPT OF A BOND OF INDEMNITY, EXECUTED JANUARY 2, 1930, BY THE VETERAN, AS PRINCIPAL, AND THE HARTFORD ACCIDENT AND INDEMNITY COMPANY, HARTFORD, CONNECTICUT, AS SURETY, A DUPLICATE ADJUSTED SERVICE CERTIFICATE, NO. 3,553,300 WAS ISSUED TO THE VETERAN. ON SECURITY OF THE DUPLICATE CERTIFICATE THE VETERAN OBTAINED THE FOLLOWING DESCRIBED LOANS FROM THE OFFICE OF THIS ADMINISTRATION, OKLAHOMA CITY, OKLAHOMA:

CHART

CHECK

AMOUNT OF NOTE (VOUCHER) DATE AMOUNT

NO. OF CHECK $130

--------------------------------32,917 JAN. 23, 1930 $130.00 188 - ------ ------------------------ 39,079 MAY 1, 1930 55.88 597 - ------------------ ------------ 66,977 MAR. 24, 1931 597.00

ON JUNE 25, 1931, THE VETERAN OBTAINED A LOAN IN THE AMOUNT OF $785 ON THE SECURITY OF THE ORIGINAL ADJUSTED SERVICE CERTIFICATE, NO. 3,207,705 FROM THE OFFICE OF THIS ADMINISTRATION, DALLAS, TEXAS.

INASMUCH AS THE LOANS ON BOTH CERTIFICATES EXCEEDED THE FACE VALUE OF THE DUPLICATE ADJUSTED SERVICE CERTIFICATE, EFFORTS WERE MADE TO LOCATE THE VETERAN FOR THE PURPOSE OF OBTAINING REFUND. THESE EFFORTS, HOWEVER, PROVED UNSUCCESSFUL AND THE WHEREABOUTS OF THE VETERAN IS AT PRESENT UNKNOWN. ALTHOUGH THE VETERANS ADMINISTRATION HAD KNOWLEDGE OF THE LOAN TRANSACTIONS DESCRIBED ABOVE AS EARLY AS AUGUST, 1936, NO DEMAND WAS MADE UPON THE SURETY ON THE BOND OF INDEMNITY FOR PAYMENT OF THE LOSS SUSTAINED BY REASON OF THE ILLEGAL LOAN OBTAINED ON THE ORIGINAL ADJUSTED SERVICE CERTIFICATE UNTIL JANUARY 29, 1948. IN A LETTER DATED JANUARY 29, 1948, THE HARTFORD ACCIDENT AND INDEMNITY COMPANY WAS ADVISED THAT THE INDEBTEDNESS ON ACCOUNT OF THE ILLEGAL LOAN, WITH ACCRUED INTEREST, WOULD AMOUNT TO $1,624.71 ON FEBRUARY 25, 1948 (AMOUNT OF THE ILLEGAL LOAN, $785, WITH INTEREST AT 4 1/2 PERCENT COMPOUNDED ANNUALLY FROM JUNE 25, 1931, TO THAT DATE), AND THAT INTEREST WOULD ACCRUE THEREON IN THE DAILY AMOUNT OF ?19717 UNTIL JUNE 25, 1948, WHEN THE UNPAID INTEREST WOULD BE ADDED TO THE PRINCIPAL TO FORM A NEW PRINCIPAL UPON WHICH INTEREST WOULD BE COMPUTED AT THE RATE OF 4 1/2 PERCENT. THE SURETY WAS FURTHER ADVISED THAT SINCE THE VETERAN WAS ENTITLED TO $756.13 IN SETTLEMENT OF THE DUPLICATE ADJUSTED SERVICE CERTIFICATE, THIS SUM WOULD BE APPLIED TO THE INDEBTEDNESS AT SUCH TIME AS AN AMOUNT SHOULD BE REFUNDED, WHICH, TOGETHER WITH THE SUM OF $756.13, WOULD LIQUIDATE THE INDEBTEDNESS, AND THAT THIS AMOUNT WOULD BE $868.58 ON FEBRUARY 25, 1948.

THE FOREGOING METHOD OF COMPUTATION HAS BEEN EMPLOYED IN NUMEROUS CASES UNDER SIMILAR CIRCUMSTANCES AND WAS APPROVED BY YOU IN YOUR DECISION, A- 84227, MARCH 12, 1937, IN THE CASE OF LOWELL MASON.

THERE IS ENCLOSED COPY OF A LETTER FROM THE HARTFORD ACCIDENT AND INDEMNITY COMPANY PROTESTING THE ACTION OF THE VETERANS ADMINISTRATION.

THE RULE IS WELL SETTLED THAT WHEN A VETERAN HAS OBTAINED AN UNAUTHORIZED LOAN ON HIS ORIGINAL ADJUSTED COMPENSATION CERTIFICATE AFTER THE SAID CERTIFICATE HAS BEEN CANCELLED AND A DUPLICATE THEREOF ISSUED, INTEREST WILL BE CHARGED ON THE SAID UNAUTHORIZED LOAN UNTIL PAID, ON THE BASIS THAT THE NOTE UPON WHICH THE LOAN WAS MADE CONSTITUTES A BINDING CONTRACT UPON THE VETERAN IRRESPECTIVE OF THE CANCELLATION OF THE ADJUSTED SERVICE CERTIFICATE GIVEN AS COLLATERAL THEREFOR. SEE 15 COMP. GEN. 960; 16 ID. 844 (A-84227, MARCH 12, 1937, REFERRED TO IN THE ABOVE-QUOTED ETTER); 17 ID. 99. HOWDVER, IN THE INSTANT MATTER, THE IS PRESENTED FOR CONSIDERATION THE SPECIFIC QUESTION WHETHER THE UNITED STATES IS ENTITLED TO CHARGE INTEREST ON THE ENTIRE AMOUNT OF SUCH UNAUTHORIZED LOAN UNTIL PAID, AFTER A LONG PERIOD OF TIME, NOTWITHSTANDING THE FACT THAT THERE WAS AN AMOUNT DUE FROM THE UNITED STATES TO THE VETERAN ON THE DUPLICATE CERTIFICATE DURING THE SAID PERIOD.

IN AMERICAN PROPELLER AND MANUFACTURING COMPANY V. UNITED STATES, 300 U.S. 475, THE PLAINTIFF BROUGHT SUIT IN THE COURT OF CLAIMS TO RECOVER A BALANCE DUE FROM THE UNITED STATES UNDER CERTAIN CONTRACTS. THE UNITED STATES INTERPOSED A COUNTERCLAIM FOR THE AMOUNT OF INCOME AND EXCESS PROFITS TAX DUE FROM THE PLAINTIFF, AND THE COURT OF CLAIMS RENDERED JUDGMENT IN FAVOR OF THE UNITED STATES UPON ITS COUNTERCLAIM, INCLUDING INTEREST THEREON. IN ITS DECISION REVERSING THE JUDGMENT AS TO INTEREST ON THE AMOUNT OF THE COUNTERCLAIM, THE SUPREME COURT SAID (PAGE 478):

IT WILL BE SEEN THAT UNDER THE FINDINGS, THE GOVERNMENT WAS INDEBTED IN 1924 TO PETITIONER IN THE SUM OF $119,413.04, AGAINST WHICH THERE WAS AT THE SAME TIME A JUST COUNTERCLAIM OF 82,701.29; SO THAT IF THE ACCOUNT HAD BEEN ADJUSTED AT THAT TIME INSTEAD OF 12 YEARS LATER, THE GOVERNMENT WOULD HAVE BEEN OBLIGED TO PAY PETITIONER THE DIFFERENCE BETWEEN THOSE TWO SUMS; OR $36,711.75. THE INEQUITY OF ALLOWING THE GOVERNMENT INTEREST FOR 12 YEARS UNDER THESE CIRCUMSTANCES, SO AS TO BRING THE PETITIONER IN DEBT TO THE GOVERNMENT IN THE SUM OF OVER $21,000, IS SO GROSS AS TO BE SHOCKING.

WE HAVE SAID ( UNITED STATES V. THE THEKLA, 266 U.S. 328, 339-340, 341/-- - " WHEN THE UNITED STATES COMES INTO COURT TO ASSERT A CLAIM IT SO FAR TAKES THE POSITION OF A PRIVATE SUITOR ASTO AGREE BY IMPLICATION THAT JUSTICE MAY BE DONE WITH REGARD TO THE SUBJECT MATTER. THE ABSENCE OF LEGAL LIABILITY IN A CASE WHERE BUT FOR ITS SOVEREIGNTY IT WOULD BE LIABLE DOES NOT DESTROY THE JUSTICE OF THE CLAIM AGAINST IT * * * THE REASONS ARE STRONG FOR NOT OBSTRUCTING THE APPLICATION OF NATURAL JUSTICE AGAINST THE GOVERNMENT BY TECHNICAL FORMULAS WHEN JUSTICE CAN BE DONE WITHOUT ENDANGERING ANY PUBLIC INTEREST.' IF THE PRINCIPLE THUS STATED IS NOT STRICTLY APPLICABLE, IT AT LEAST SUGGESTS THAT THE COURT SHOULD NOT AFFIRM WHAT IS CLEARLY AN UNJUST AND INEQUITABLE RESULT UNLESS UNDER PLAIN COMPULSION OF LAW.

SEE, ALSO, IN RE SOUTH COAST CO., 22 F. SUPP. 652, WHEREIN THE COURT SAID (PAGE 653):

* * * UNDER ORDINARY CIRCUMSTANCES, THESE TAXES DRAW INTEREST FROM THE DATE THEY ARE DUE AT 6 PERCENT, AND THE DUTY IS UPON THE TAXPAYER TO HAVE THEM DETERMINED AND TO PAY THEM. HOWEVER, WHERE, AS HERE, THE DEBTOR WAS WILLING AND READY TO PAY, HAD THE FUNDS SET ASIDE FOR THAT PURPOSE, AND WAS ONLY AWAITING ADVICE FROM THE COLLECTOR AS TO THE AMOUNT, TO BE DETERMINED BY THE PRACTICES OF THE DEPARTMENT IN CALCULATING INTEREST, ETC., AND THAT FACT WAS MADE KNOWN TO THE AGENTS OF THE GOVERNMENT, IT WOULD BE INEQUITABLE TO REQUIRE PAYMENT OF THE INTEREST SIMPLY BECAUSE OF THE OVERSIGHT OR NEGLIGENCE OF THE REVENUE DEPARTMENT IN FAILING TO TAKE ACTION. * * *

IN THE INSTANT MATTER, THE FACE VALUE OF THE ADJUSTED SERVICE CERTIFICATE INVOLVED WAS $1,570. IT APPEARS THAT THE AGGREGATE AMOUNT OF THE LOANS ON BOTH THE ORIGINAL AND DUPLICATE CERTIFICATES WAS $1,567.88. INTEREST WAS PROPERLY CHARGEABLE ON THE AUTHORIZED LOANS BASED ON THE DUPLICATE CERTIFICATE FROM THE RESPECTIVE DATES OF THE LOANS TO AND INCLUDING SEPTEMBER 30, 1931, IN ACCORDANCE WITH THE ACT OF JANUARY 27, 1936, 49 STAT. 1099, 1100; AND INTEREST IS PROPERLY CHARGEABLE ON THE UNAUTHORIZED LOAN BASED ON THE ORIGINAL CERTIFICATE FROM THE DATE OF SUCH LOAN ( JUNE 25, 1931). IT THUS APPEARS THAT ON JANUARY 27, 1936 (THE EFFECTIVE DATE OF THE SAID ACT OF JANUARY 27, 1936, 49 STAT. 1099, MAKING ADJUSTED SERVICE CERTIFICATES IMMEDIATELY PAYABLE), THE AGGREGATE OF ALL LOANS INVOLVED IN THIS MATTER, PLUS INTEREST, DID NOT GREATLY EXCEED THE FACE VALUE OF THE ADJUSTED SERVICE CERTIFICATE TO WHICH THE VETERAN WAS ENTITLED.

IN VIEW OF THE COURT DECISIONS ABOVE REFERRED TO AND THE EQUITIES OF THE INSTANT MATTER, IT IS CONCLUDED THAT THE AMOUNT OF $756.13 REPORTED AS DUE THE VETERAN IN SETTLEMENT OF THE DUPLICATE ADJUSTED SERVICE CERTIFICATE SHOULD BE SET OFF AGAINST HIS LOAN INDEBTEDNESS AS OF JANUARY 27, 1936, AND THAT ANY BALANCE DUE FROM HIM TO THE UNITED STATES, AS OF THAT DATE, SHOULD DRAW INTEREST UNTIL PAID, IRRESPECTIVE OF ANY DELAY BY THE GOVERNMENT IN NOTIFYING HIM OR HIS SURETY AS TO THE BALANCE DUE.