B-8643, MARCH 22, 1940, 19 COMP. GEN. 811

B-8643: Mar 22, 1940

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WERE UNRESTRICTEDLY ENDORSED BY HIS DULY APPOINTED AND QUALIFIED GUARDIAN "AS GUARDIAN. WHERE RAILROAD RETIREMENT ANNUITY CHECKS DRAWN TO THE ORDER OF AN ANNUITANT PAYEE WERE DEPOSITED IN A BANK UPON ENDORSEMENT OF HIS GUARDIAN PRIOR TO THE ANNUITANT'S DEATH UNDER SUCH CIRCUMSTANCES THAT THE BANK ACQUIRED CERTAIN RIGHTS AGAINST THE UNITED STATES AS TO THE PROCEEDS EVEN THOUGH THE TREASURER OF THE UNITED STATES DECLINED TO PAY THE CHECKS BECAUSE THEY WERE NOT ENDORSED BY THE PAYEE. THE PROCEEDS LOSE THEIR IDENTITY AS ANNUITIES DUE A SURVIVING SPOUSE FOR PAYMENT BY THE RAILROAD RETIREMENT BOARD AND BECOME AMOUNTS CLAIMS FOR WHICH ARE FOR SETTLEMENT BY THE GENERAL ACCOUNTING OFFICE. 1940: I HAVE YOUR LETTER OF FEBRUARY 19.

B-8643, MARCH 22, 1940, 19 COMP. GEN. 811

CHECKS - NEGOTIATION - BANK DEPOSITORY'S RIGHTS WHERE CHECKS, DRAWN TO THE ORDER OF AN INCOMPETENT PAYEE, WERE UNRESTRICTEDLY ENDORSED BY HIS DULY APPOINTED AND QUALIFIED GUARDIAN "AS GUARDIAN," IN ACCORDANCE WITH ACCEPTED COMMERCIAL USAGE AND THE LAWS OF THE STATE WHEREIN NEGOTIATED, AND DEPOSITED IN A BANK, SUCH ACTION NOT ONLY OPERATED AS A VALID NEGOTIATION, BUT CREATED IN THE BANK A COMPLETE AND VALID TITLE TO THE CHECK, NOTWITHSTANDING A CUSTOM OR AGREEMENT TO CHARGE THE CHECK BACK TO THE DEPOSITOR IN THE EVENT OF DISHONOR. WHERE RAILROAD RETIREMENT ANNUITY CHECKS DRAWN TO THE ORDER OF AN ANNUITANT PAYEE WERE DEPOSITED IN A BANK UPON ENDORSEMENT OF HIS GUARDIAN PRIOR TO THE ANNUITANT'S DEATH UNDER SUCH CIRCUMSTANCES THAT THE BANK ACQUIRED CERTAIN RIGHTS AGAINST THE UNITED STATES AS TO THE PROCEEDS EVEN THOUGH THE TREASURER OF THE UNITED STATES DECLINED TO PAY THE CHECKS BECAUSE THEY WERE NOT ENDORSED BY THE PAYEE, THE PROCEEDS LOSE THEIR IDENTITY AS ANNUITIES DUE A SURVIVING SPOUSE FOR PAYMENT BY THE RAILROAD RETIREMENT BOARD AND BECOME AMOUNTS CLAIMS FOR WHICH ARE FOR SETTLEMENT BY THE GENERAL ACCOUNTING OFFICE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE CHAIRMAN, RAILROAD RETIREMENT BOARD, MARCH 22, 1940:

I HAVE YOUR LETTER OF FEBRUARY 19, 1940, AS FOLLOWS:

UNDER SECTION 3 (F) AND SECTION 5 OF THE RAILROAD RETIREMENT ACT OF 1937, ANNUITY PAYMENTS UNDER THE 1935 ACT OR THE 1937 ACT WHICH ARE "DUE AN INDIVIDUAL, BUT NOT YET PAID AT DEATH" ARE TO BE PAID TO A SURVIVING SPOUSE, A DESIGNATED BENEFICIARY, OR A LEGAL REPRESENTATIVE, AS THE CASE MAY BE. UNDER THE PROVISIONS OF SECTION 10 (B) OF THE ACT, IT IS THE DUTY OF THE BOARD TO DETERMINE WHICH OF THESE IS ENTITLED TO ANNUITIES DUE BUT "NOT YET PAID" AT DEATH, AND TO MAKE CERTIFICATION ACCORDINGLY. (SEE LETTERS FROM YOUR OFFICE TO ME, DATED JUNE 4, 1938 (A-95115), AND SEPTEMBER 24, 1938 (A-46520); LETTER FROM ME TO YOUR OFFICE, DATED DECEMBER 2, 1938; AND LETTER FROM YOUR OFFICE TO ME, DATED DECEMBER 23, 1938.)

IN CASES IN WHICH ANNUITY CHECKS HAVE BEEN ISSUED BY THE TREASURY OF THE UNITED STATES, BUT THE ANNUITANTS HAVE NOT EVEN ATTEMPTED TO NEGOTIATE THEM PRIOR TO DEATH, IT HAS BEEN THE PRACTICE OF THE BOARD, PURSUANT TO CORRESPONDENCE WITH YOUR OFFICE, (SEE LETTERS FROM YOUR OFFICE TO ME, DATED JUNE 4, 1938 (A-95115), AND SEPTEMBER 24, 1938 (A 46520); LETTER FROM ME TO YOUR OFFICE, DATED DECEMBER 2, 1938; AND LETTER FROM YOUR OFFICE TO ME, DATED DECEMBER 23, 1938.) (1) TO REQUEST YOUR OFFICE TO CANCEL SUCH CHECKS AND RESTORE THE AMOUNTS THEREOF TO THE APPROPRIATIONS UNDER WHICH THEY WERE DRAWN AND (2) TO CERTIFY TO THE SECRETARY OF THE TREASURY THE NAME AND ADDRESS OF THE INDIVIDUAL ENTITLED TO THE PAYMENT OF THESE AMOUNTS.

IN THE CASE OF JOHN THOMAS SHIELDS, A-91944, THERE HAS BEEN AN ATTEMPTED NEGOTIATION OF CERTAIN ANNUITY CHECKS PRIOR TO DEATH OF THE ANNUITANT, AND A QUESTION FOR DETERMINATION BY YOUR OFFICE HAS ARISEN; NAMELY, WHETHER THERE HAS BEEN SUCH NEGOTIATION AS TO CONSTITUTE A CLAIM AGAINST THE UNITED STATES FOR ALL, OR ANY PART OF, THE SUMS INVOLVED.

THE FACTS OF THE CASE ARE AS FOLLOWS: TWO RAILROAD RETIREMENT ANNUITY CHECKS, DRAWN ON THE UNITED STATES TREASURY, WERE ISSUED PAYABLE TO " JOHN THOMAS SHIELDS.' THESE CHECKS WERE DATED AUGUST 22, 1938, AND SEPTEMBER 2, 1938, RESPECTIVELY, AND WERE IN THE AMOUNTS OF $570.24 (CHECK NO. 94409, OVER SYMBOL NO. 894-404), AND $95.04 (CHECK NO. 1433675, OVER SYMBOL NO. 894-404), RESPECTIVELY. THE CHECKS WERE ENDORSED BY J. E. HAYNES, OF SALISBURY, NORTH CAROLINA, WHO ON AUGUST 27, 1938, WAS APPOINTED GUARDIAN OF MR. SHIELDS BY THE SUPERIOR COURT, ROWAN COUNTY, NORTH CAROLINA, AND WERE DEPOSITED BY MR. HAYNES, AS GUARDIAN OF MR. SHIELDS, IN THE FIRST NATIONAL BANK OF SALISBURY, NORTH CAROLINA; THE FIRST CHECK WAS DEPOSITED BY HIM ON AUGUST 27, 1938, AND THE SECOND ON SEPTEMBER 10, 1938. AT THE TIME THE FIRST CHECK WAS DEPOSITED ON AUGUST 27, 1938, MR. H. P. BRANDIS, CASHIER OF THE FIRST NATIONAL BANK, SENT THE FOLLOWING LETTER TO THE UNITED STATES TREASURY DEPARTMENT:

"YOUR CHECK NO. 94409, $570.24, PAYABLE TO MR. JOHN THOMAS SHIELDS A- 91944, WAS DEPOSITED TODAY BY MR. J. E. HAYNES, GUARDIAN OF MR. JOHN THOMAS SHIELDS.

"WE ENCLOSE, HEREWITH, LETTER FROM MR. B. D. MCCUBBINS, CLERK SUPERIOR COURT, ROWAN COUNTY, NORTH CAROLINA, APPOINTING MR. HAYNES GUARDIAN OF MR. JOHN THOMAS SHIELDS, INCOMPETENT.'

THE BANK MADE CERTAIN PAYMENTS ON CHECKS DRAWN BY MR. HAYNES AGAINST THE DEPOSIT OF THE ABOVE ANNUITY CHECKS.

UNDER DATE OF SEPTEMBER 10, 1938, MR. G. F. ALLEN, CHIEF DISBURSING OFFICER OF THE UNITED STATES TREASURY DEPARTMENT, WROTE AS FOLLOWS TO THE CASHIER OF THE FIRST NATIONAL BANK OF SALISBURY, NORTH CAROLINA, WITH REFERENCE TO THE ANNUITY CHECK OF $570.24:

"CHECKS DRAWN ON THE TREASURER OF THE UNITED STATES MUST BE ENDORSED PERSONALLY BY THE PAYEES THEREOF IN ORDER TO BE NEGOTIABLE. SINCE YOU STATE THAT CHECK NO. 94,409, DATED AUGUST 22, 1938, FOR $570.24, IN FAVOR OF MR. JOHN THOMAS SHIELDS, OVER SYMBOL NO. 894-404, HAS BEEN DEPOSITED BY THE GUARDIAN, IT WILL IN ALL PROBABILITY BE RETURNED UNPAID TO THE BANK. IN THAT EVENT, THE BANK SHOULD MAKE RECLAMATION OF THE AMOUNT, CANCEL ALL ENDORSEMENTS, AND RETURN THE CHECK TO THE GUARDIAN TO BE FORWARDED TO THIS OFFICE FOR ADJUSTMENT.'

THE TWO CHECKS WERE RETURNED TO THE TREASURY DEPARTMENT PURSUANT TO THE DEPARTMENT'S REQUEST. BEFORE ADJUSTMENT WAS MADE, MR. SHIELDS DIED ON SEPTEMBER 17, 1938, LEAVING A WIFE AND CHILDREN. MR. HAYNES WAS APPOINTED ADMINISTRATOR OF MR. SHIELDS' ESTATE BY THE SUPERIOR COURT OF ROWAN COUNTY, NORTH CAROLINA, ON SEPTEMBER 23, 1938.

PRIOR TO THE DATE ON WHICH HE HAD BEEN DECLARED INCOMPETENT BY THE SUPERIOR COURT OF ROWAN COUNTY, MR. SHIELDS HAD MADE A DESIGNATION OF BENEFICIARY UNDER SECTION 5 OF THE ACT IN FAVOR OF HIS WIFE, MRS. ANNIE T. SHIELDS, AND UNDER SECTIONS 3 (F) AND 5 SHE WOULD BE ENTITLED TO THE AMOUNT OF THE TWO ANNUITY CHECKS IF THIS AMOUNT REPRESENTS "ANNUITY PAYMENTS DUE * * * BUT NOT YET PAID AT DEATH.'

REALIZING THIS POSSIBILITY, THE CASHIER OF THE FIRST NATIONAL BANK OF SALISBURY, NORTH CAROLINA, WROTE TO THE BOARD, UNDER DATE OF DECEMBER 3, 1938, AS FOLLOWS:

"AS WE UNDERSTAND IT THIS MATTER WAS HANDLED STRICTLY IN ACCORDANCE WITH THE LAW OF THE STATE OF NORTH CAROLINA AS MR. SHIELDS WAS ADJUDGED INCOMPETENT AND MR. J. E. HAYNES QUALIFIED AS GUARDIAN. AT HIS DEATH, MR. HAYNES COMPLIED WITH THE LAW OF THE STATE OF NORTH CAROLINA AND QUALIFIED AS ADMINISTRATOR OF THE ESTATE OF MR. SHIELDS.

"THE BANK IS INTERESTED DUE TO THE FACT, AFTER PROPER QUALIFICATION BY MR. J. E. HAYNES, AS GUARDIAN, WE PAID SEVERAL CHECKS AGAINST THIS ACCOUNT AND WHEN THE CHECKS DEPOSITED BY MR. HAYNES, AS GUARDIAN, WERE RETURNED UNPAID, WE RELEASED THEM TO MR. HAYNES, IN ORDER THAT SAME COULD BE TAKEN UP WITH YOU AND THE MATTER ADJUSTED SO THAT WE COULD GET RELIEF.

"OUR POSITION IS THAT, WHILE COMPLYING STRICTLY WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WE NOW FIND OURSELVES IN A POSITION OF HAVING PAID SEVERAL CHECKS WITH NO SUPPORTING DEPOSIT AND WE ARE VERY ANXIOUS TO GET THIS MATTER STRAIGHTENED OUT.'

UNDER DATE OF APRIL 5, 1939, MR. HAYNES WROTE TO THE BOARD AS FOLLOWS:

" I WISH TO STATE THAT I HAVE BEEN VERY MUCH EMBARRASSED, WORRIED, AND AT A LOSS TO KNOW WHAT TO TELL THE CREDITORS OF THIS ESTATE. I HAVE ON FILE NURSE'S BILLS, HOSPITAL BILLS, AND DOCTOR'S BILLS THAT ARE LONG PAST DUE AND UNPAID. I KNOW THAT THEY NEED THEIR MONEY AS THEY HAVE MADE REQUEST AFTER REQUEST TO ME FOR PAYMENT. THEY ALSO KNOW THAT CERTAIN FUNDS ARE DUE THE ESTATE FROM THE RAILROAD RETIREMENT BOARD AND THAT THIS HAS BEEN HELD UP SINCE LAST YEAR AND THEY SEEM TO THINK THAT THIS IS MY FAULT.

" I WISH THAT YOU WOULD TAKE A PERSONAL INTEREST IN THIS IF I MAY ASK SUCH A FAVOR AND GET IN BEHIND THE PROPER OFFICIALS AND ASK THEM TO CLEAR THIS ITEM OUT. MRS. SHIELDS, THE WIDOW, IS ILL AND HAS BEEN SERIOUSLY ILL FOR THE PAST TWO MONTHS AND IS NOT ABLE TO LOOK AFTER HER AFFAIRS. SHE HAS ASKED ME TO REPRESENT HER AND LOOK AFTER HER INTEREST IF THERE IS ANYTHING THAT SHE WOULD HAVE TO DO TO GET THIS ADJUSTED.

"THE CLERK OF THE SUPERIOR COURT OF ROWAN COUNTY HAS ASKED ME TO FILE A REPORT AS ADMINISTRATOR OF THIS ESTATE. THIS I AM UNABLE TO DO OWING TO THE FACT THAT I HAVE BEEN UNABLE TO COLLECT THE FUNDS LONG PAST DUE. THE ONLY THING I COULD REPORT IS ITEMS DUE MR. SHIELDS' CREDITORS.' UNDER DATE OF JANUARY 18, 1940, MR. HAYNES WROTE THE FOLLOWING LETTER TO THE BOARD:

" I HAVE GIVEN THIS MATTER VERY CAREFUL CONSIDERATION AND MUST ADMIT THAT THIS HAS CAUSED ME MORE TROUBLE THAN ANYTHING THAT I HAVE EVER HAD ANYTHING TO DO WITH. MRS. SHIELDS HAS BEEN SICK PRACTICALLY EVERY DAY SINCE THE DEATH OF HER HUSBAND AND SHE, OF COURSE, NEEDS MONEY. AT THIS TIME SHE IS CONFINED TO THE ROWAN MEMORIAL HOSPITAL HERE AND HAS BEEN FOR THE PAST MONTH OR MORE, NOT ABLE TO DO ANYTHING BUT WORRY ABOUT MATTERS OF THIS KIND. SHE HAS HER DOCTOR TO CALL ME EVERY FEW DAYS ASKING WHETHER OR NOT I HAVE HEARD ANYTHING FROM THE RAILROAD RETIREMENT BOARD.

" I WANT TO MAKE THE FOLLOWING SUGGESTION AND ASK THAT YOU GIVE THIS YOUR SERIOUS CONSIDERATION. FIRST, I WISH TO STATE THAT I RECEIVED THREE CHECKS TOTALING $737.28. (THIS AMOUNT INCLUDES A PENSION CHECK ISSUED TO MR. SHIELDS BY THE VETERANS ADMINISTRATION, IN THE AMOUNT OF $72.00 ( NO. 842651) DATED AUGUST 31, 1938. THE RAILROAD RETIREMENT BOARD HAS NO JURISDICTION OVER THIS CHECK.) THESE CHECKS WERE ENDORSED BY ME AND DEPOSITED IN THE FIRST NATIONAL BANK OF SALISBURY, NORTH CAROLINA, IN THE REGULAR WAY AND AGAINST THE ABOVE AMOUNT I ISSUED CHECKS AS FOLLOWS:

CHART

CHECK NO. 1--- B. D. MCCUBBINS, CLERK OF SUPERIOR COURT----- $48.00

CHECK NO. 2--- B. D. MCCUBBINS, CLERK OF SUPERIOR COURT----- 3.50

CHECK NO. 3--- MRS. JOHN THOMAS SHIELDS ------------------- 50.00

CHECK NO. 4--- FRANK SHIELDS -------------------------------- 20.00

CHECK NO. 5--- J. E. HAYNES, GUARDIAN ------------------------ 28.50

CHECK NO. 6--- W. C. MAUPIN, AGENT --------------------------- 10.00

160.00

" I WANT TO EXPLAIN EACH CHECK. FIRST, CHECK NO. 1 IN FAVOR OF B. D. MCCUBBINS, CLERK OF SUPERIOR COURT, FOR $48.00 COVERED THE COST OF A JURY TRIAL AT WHICH TIME MR. SHIELDS WAS DECLARED INCOMPETENT. HIS WIFE AND SON FRANK WERE PRESENT AND GAVE THE EVIDENCE TO THE JURY. THIS CHECK PAID FOR THE COST OF THIS HEARING. CHECK NO. 2 IN FAVOR OF B. D. MCCUBBINS, CLERK OF SUPERIOR COURT, FOR $3.50 COVERED THE COST OF MY COMMISSION AS GUARDIAN.

"CHECK NO. 3 TO MRS. JOHN T. SHIELDS FOR $50.00 WAS DRAWN IN ORDER THAT SHE MAY HAVE FUNDS TO HELP DEFRAY THE EXPENSES OF ATTENDANCE FOR MR. SHIELDS. CHECK NO. 4 TO FRANK SHIELDS FOR $20.00 WAS GIVEN TO PROVIDE CLOTHES FOR A MINOR CHILD OF MR. SHIELDS BY HIS FIRST WIFE. CHECK NO. 5 TO J. E. HAYNES, GUARDIAN, FOR $28.50, REPRESENTING THE COMMISSION ALLOWED ME OF 5 PERCENT ON TREASURY CHECK NO. 94409 DATED AUGUST 22, 1938, IN THE AMOUNT OF $570.24. FOR YOUR INFORMATION, THIS CHECK WAS NEVER CASHED BY THE BANK. CHECK NO. 6 DRAWN IN FAVOR OF W. C. MAUPIN, AGENT, FOR $10.00 COVERED A SURETY BOND THAT HAD TO BE PUT UP WHILE ACTING AS GUARDIAN. YOU CAN SEE FROM THE ABOVE CHECKS THAT THERE HAS BEEN PAID AGAINST THIS ACCOUNT A TOTAL OF $131.50. $70.00 OF THIS AMOUNT WENT TO MRS. SHIELDS AND TO MR. SHIELDS' MINOR CHILD BY HIS FIRST WIFE. THE REMAINDER AMOUNTING TO $61.50 WAS SPENT PAYING COURT COSTS, GUARDIANSHIP, AND BOND. NO ONE ELSE HAS SECURED ANYTHING FROM THIS FUND.

"IN MY OPINION THE PROPER THING TO DO NOW IS FOR THE GOVERNMENT TO PAY THIS $131.50 WHICH STANDS AS AN OVERDRAFT AT THE FIRST NATIONAL BANK HERE AND THEN, IF THEY SO ELECT, PAY THE BALANCE OF THIS ACCOUNT TO MRS. SHIELDS. HOWEVER, I FEEL THAT POSSIBLY UNITED STATES TREASURY CHECK NO. 842651 DATED AUGUST 31, 1938, SHOULD BE PAID TO HIS ESTATE AS THAT IS A PENSION CHECK PAID TO MR. SHIELDS ON ACCOUNT OF HIS BEING A SPANISH WAR VETERAN.

" MR. SCHOENE, PERSONALLY I DON-T CARE ANYTHING ABOUT MY COMMISSION. NEITHER DO I CARE ANYTHING ABOUT ANY OF THE ABOVE FUNDS EXCEPT THE AMOUNT THAT I ISSUED CHECKS FOR, NAMELY $131.50. THE REMAINDER, SO FAR AS I AM CONCERNED, PERSONALLY CAN BE PAID DIRECT TO MRS. SHIELDS, BUT I DO FEEL THAT SINCE I ACTED IN GOOD FAITH AND ON THE ADVICE OF THE CLERK OF THE SUPERIOR COURT OF ROWAN COUNTY, NORTH CAROLINA, THAT I SHOULD BE PROTECTED AGAINST ACTUAL MONEYS ADVANCED FOR THE BENEFIT OF MRS. SHIELDS AND THE MINOR CHILD AND THE COST OF THE COURT ATTENDANCE AND THE BOND.

" I HOPE THAT YOU WILL UNDERSTAND MY POSITION THOROUGHLY AND THAT IF YOU PLACE THIS MATTER BEFORE THE GENERAL ACCOUNTING OFFICE THAT YOU WILL INTERCEDE FOR ME AND IF POSSIBLE, PROTECT ME IN THE AMOUNT OF $131.50. INSOFAR AS THE DECISION OF THE BOARD WITH REFERENCE TO OTHER CLAIMS, I CAN VERY EASILY TELL THEM THAT THIS MONEY WAS PAYABLE DIRECT TO MRS. SHIELDS.'

THE PRECISE QUESTION TO BE DETERMINED BY YOUR OFFICE IS: TO WHAT EXTENT, IF ANY, HAS THE ATTEMPTED NEGOTIATION, UNDER THE FACTS ABOVE MENTIONED, GIVEN RISE TO A VALID CLAIM AGAINST THE UNITED STATES?

IF YOU FIND THAT THERE IS NO VALID CLAIM AGAINST THE UNITED STATES AS TO ANY PART OF THE SUM IN QUESTION, THEN THE ENTIRE AMOUNT WILL REPRESENT ANNUITIES DUE BUT UNPAID AT DEATH OF THE ANNUITANT AND WILL BE PAYABLE TO MRS. SHIELDS, PURSUANT TO SECTIONS 3 (F) AND 5 OF THE RAILROAD RETIREMENT ACT OF 1937.

IF YOU FIND THAT THERE IS A VALID CLAIM AGAINST THE UNITED STATES TO THE ENTIRE AMOUNT, THEN NONE OF IT WILL REPRESENT ANNUITIES DUE BUT UNPAID AT DEATH OF THE ANNUITANT, AND NO AMOUNT WILL BE PAYABLE UNDER THE RAILROAD RETIREMENT ACT.

IF YOU FIND THAT THERE IS A VALID CLAIM AGAINST THE UNITED STATES AS TO PART OF THE AMOUNT IN QUESTION, THEN THE PART AS TO WHICH THERE IS A CLAIM WILL NOT REPRESENT ANNUITIES DUE BUT UNPAID AT DEATH OF THE ANNUITANT AND THIS PART WILL NOT BE PAYABLE UNDER THE RAILROAD RETIREMENT ACT; HOWEVER, THE PART AS TO WHICH THERE IS NO CLAIM WILL REPRESENT ANNUITIES DUE BUT UNPAID AND THIS PART WILL BE PAYABLE TO MRS. SHIELDS UNDER SECTIONS 3 (F) AND 5 OF THE ACT. IT IS BELIEVED THAT THE PROPOSITIONS OUTLINED ABOVE REPRESENT A PROPER DIVISION OF FUNCTION BETWEEN THE GENERAL ACCOUNTING OFFICE AND THE BOARD. THE RAILROAD RETIREMENT ACT REQUIRES THE BOARD TO DETERMINE THE EXISTENCE OF ANNUITIES DUE BUT UNPAID AT DEATH AND TO CERTIFY PAYMENT TO THE PERSONS ENTITLED UNDER THE ACT. IN MAKING SUCH DETERMINATIONS, IT IS OUR VIEW, IN ACCORDANCE WITH WELL-ESTABLISHED PRINCIPLES FREQUENTLY EXPRESSED BY YOUR OFFICE, THAT THE ISSUANCE OF A CHECK DOES NOT REPRESENT PAYMENT, BUT THAT PAYMENT OCCURS UPON NEGOTIATION. IT IS OUR VIEW, FURTHER, THAT NEGOTIATION OCCURS BY ANY TRANSFER THROUGH WHICH THE TRANSFEREE ACQUIRES RIGHTS AGAINST THE UNITED STATES, EVEN THOUGH THE TRANSFER MAY NOT BE IN ACCORDANCE WITH THE RULES OF THE TREASURY DEPARTMENT REGARDING NEGOTIATION. IF THESE CONCLUSIONS ARE CORRECT, IT FOLLOWS THAT WHENEVER A TRANSFER OCCURS WHICH IS NOT IN ACCORDANCE WITH THE RULES OF THE TREASURY DEPARTMENT BUT WHICH, NEVERTHELESS, IS NOT CLEARLY INVALID, IT BECOMES NECESSARY TO SECURE A DETERMINATION FROM THE GENERAL ACCOUNTING OFFICE AS TO WHETHER THE TRANSFEREE HAS ACQUIRED RIGHTS AGAINST THE UNITED STATES. SUCH A DETERMINATION WOULD APPEAR PROPERLY TO BE A PART OF THE FUNCTIONS OF THE GENERAL ACCOUNTING OFFICE IN THE SETTLEMENT OF CLAIMS AGAINST THE UNITED STATES. IT IS PROPOSED, THEREFORE, THAT THE PROCEDURE ADOPTED IN THIS INSTANCE BE FOLLOWED GENERALLY IN CASES OF THIS TYPE AND AN EXPRESSION OF YOUR VIEWS REGARDING THIS PROPOSAL, AS WELL AS A DECISION OF THE SPECIFIC QUESTIONS RELATING TO THE SHIELDS CASE IS DESIRED.

PERTINENT CORRESPONDENCE IN THE SHIELDS CASE IS SUBMITTED HEREWITH.

IT IS WELL SETTLED THAT IN THE ABSENCE OF A SPECIAL AGREEMENT TO THAT EFFECT, THE DELIVERY AND ACCEPTANCE OF A CHECK DOES NOT OPERATE AS PAYMENT OF A DEBT UNLESS THE CHECK IS PAID. CLEVE V. CRAVEN CHEMICAL CO., 18 FED. (2D) 711, 712; DOW V. COWAN, 23 FED. (2D) 646, 647; JEFFERSON STANDARD LIFE INSURANCE CO. V. WISDOM, 58 FED. (2D) 565, 566; CARCABA V. MCNAIR, 68 FED. (2D) 795, 796; MITTRY BROTHERS CONSTRUCTION CO. V. UNITED STATES, 75 FED. (2D) 79, 82; STANDARD INVESTMENT CO. V. TOWN OF SNOWHILL, NORTH CAROLINA, 78 FED. (2D) 33, 35-6; MANUFACTURERS FINANCE CO. V. ARMSTRONG, 78 FED. (2D) 289, 290; HAMILTON V. R. S. DICKSON AND CO., 85 FED. (2D) 107. COMPARE 26 COMP. DEC. 1038; AND 9 COMP. GEN. 144. THIS GENERAL RULE APPEARS TO BE THE RULE IN NORTH CAROLINA WHERE THE CHECKS IN QUESTION WERE DELIVERED AND NEGOTIATED. THOMAS V. PRUDENTIAL INSURANCE COMPANY OF AMERICA, 104 FED. (2D) 480, 481. IT IS NOT BELIEVED THERE COULD BE SUCCESSFULLY ASSERTED THAT A DIFFERENT RULE IS FOR APPLICATION IN THE PRESENT CASE BECAUSE UNITED STATES TREASURY CHECKS ARE INVOLVED. IT IS WELL SETTLED THAT "AS AGAINST THE UNITED STATES, THE RIGHTS OF THE HOLDER OF ITS CHECKS DRAWN UPON THE TREASURER ARE THE SAME AS THOSE ACCORDED BY COMMERCIAL PRACTICE TO THE CHECKS OF PRIVATE INDIVIDUALS.' UNITED STATES V. GUARANTY TRUST COMPANY, 293 U.S. 340, 350, AND CASES THERE CITED. SEE, ALSO, 12 COMP. GEN. 492.

THE TWO CHECKS HERE IN QUESTION WERE NOT PAID BY THE TREASURER OF THE UNITED STATES WHEN PRESENTED FOR PAYMENT BY THE FIRST NATIONAL BANK OF SALISBURY, NORTH CAROLINA, BUT WERE RETURNED TO SAID BANK. THEY HAVE SINCE BEEN TRANSMITTED TO THIS OFFICE THROUGH THE TREASURY DEPARTMENT AND HAVE BEEN CANCELED. THUS, THE MONEY APPROPRIATED TO PAY THESE ANNUITIES NEVER LEFT THE TREASURY OF THE UNITED STATES. IT APPEARS CLEAR, THEREFORE, THAT THE ANNUITY OBLIGATION OF THE UNITED STATES TO JOHN THOMAS SHIELDS, AS REPRESENTED BY THE CANCELED CHECKS, HAS NOT BEEN "PAID" BY THE UNITED STATES WITHIN THE ACCEPTED MEANING OF THAT TERM.

BUT WHILE THE ANNUITY PAYMENTS WERE NEVER ACTUALLY CONSUMMATED BY THE UNITED STATES DUE TO THE TREASURER'S REFUSAL TO PAY THE CHECKS WHEN PRESENTED, NEVERTHELESS, THE ISSUANCE AND DELIVERY OF THESE NEGOTIABLE INSTRUMENTS TO THE ADDRESS OF SHIELDS, THE RECEIPT AND NEGOTIATION THEREOF ON HIS BEHALF BY HIS GUARDIAN, AND THE ACCEPTANCE OF THE CHECKS AND THEIR DEPOSIT IN THE FIRST NATIONAL BANK OF SALISBURY HAD A MATERIAL EFFECT UPON THE RIGHTS AND LIABILITIES OF THE PARTIES WITH RESPECT TO THOSE PAYMENTS. THERE IS FOR CONSIDERATION, THEREFORE, THE QUESTION OF WHETHER THESE TRANSACTIONS, WHILE NOT CONSTITUTING LEGAL "PAYMENT" OF THE ANNUITY OBLIGATIONS BY THE UNITED STATES, MAY NOT HAVE SO ALTERED THE POSITION OF THE PARTIES THAT AT THE TIME OF THE DEATH OF SHIELDS THERE WAS NO LONGER DUE TO HIM FROM THE UNITED STATES ANY "ANNUITY PAYMENTS" SO FAR AS THE AMOUNTS REPRESENTED BY THE CHECKS IN QUESTION ARE CONCERNED. TO ENTITLE A "SURVIVING SPOUSE" TO ANNUITY PAYMENTS UNDER SECTION 3 (F) OF THE RAILROAD RETIREMENT ACT, IT IS NOT ENOUGH THAT THEY HAD NOT BEEN "PAID" BY THE UNITED STATES AT THE TIME OF HIS DEATH; IT MUST APPEAR ALSO, THAT AT THAT TIME SAID PAYMENT CONTINUED TO BE "DUE" TO THE ANNUITANT.

THE CHECKS HERE INVOLVED WERE DATED AUGUST 22, 1938, AND SEPTEMBER 2, 1938. ON AUGUST 27, 1938, THE SUPERIOR COURT FOR ROWAN COUNTY, NORTH CAROLINA, ADJUDICATED MR. SHIELDS TO BE INCOMPETENT AND APPOINTED J. E. HAYNES AS HIS GUARDIAN. MR. HAYNES ENDORSED THE CHECKS " JOHN THOMAS SHIELDS, BY J. E. HAYNES, GUARDIAN," AND DEPOSITED THEM, AS GUARDIAN, IN THE FIRST NATIONAL BANK OF SALISBURY. IT IS UNDERSTOOD THAT ENDORSEMENT OF SUCH CHECKS BY THE DULY APPOINTED AND QUALIFIED GUARDIAN OF ONE WHO HAS BEEN ADJUDICATED INCOMPETENT CONFORMS WITH ACCEPTED COMMERCIAL USAGE. ALSO, IT APPEARS FROM QUOTED STATEMENTS CONTAINED IN YOUR LETTER THAT IT ACCORDED WITH THE ACCEPTED LAW OF NORTH CAROLINA. ASSUMING THIS TO BE TRUE, AND THAT THE LAW OF NORTH CAROLINA CONTROLS IN A MATTER OF THIS NATURE ( UNITED STATES V. GUARANTY TRUST COMPANY, SUPRA), THE CONCLUSION APPEARS JUSTIFIED THAT THE UNRESTRICTED ENDORSEMENT OF THE CHECKS BY MR. HAYNES AS GUARDIAN AND HIS DEPOSIT THEREOF IN THE FIRST NATIONAL BANK OF SALISBURY NOT ONLY OPERATED AS A VALID NEGOTIATION, BUT CREATED IN THE BANK A COMPLETE AND VALID TITLE TO BOTH INSTRUMENTS. "FOR WHEN PAPER IS ENDORSED WITHOUT RESTRICTION BY A DEPOSITOR, AND IS AT ONCE PASSED TO HIS CREDIT BY THE BANK TO WHICH HE DELIVERS IT, HE BECOMES THE CREDITOR OF THE BANK; THE BANK BECOMES OWNER OF THE PAPER; AND IN MAKING THE COLLECTION IS NOT THE AGENT FOR THE DEPOSITOR.' DOUGLAS V. FEDERAL RESERVE BANK, 271 U.S. 489, 492. THIS IS TRUE IN THE ABSENCE OF A STATE LAW TO THE CONTRARY. DAKIN V. BAYLY, 290 U.S. 143, 146; SCHRAM V. ASKEGAARD, 34 FED. (2D) 348; IN RE KOUNTZE BROTHERS, 79 FED. (2D) 98, 100. FURTHERMORE,"WHILE THERE IS NOT ENTIRE UNIFORMITY OF OPINION, THE WEIGHT OF AUTHORITY SUPPORTS THE VIEW THAT UPON THE DEPOSIT OF PAPER UNRESTRICTEDLY ENDORSED, AND CREDIT OF THE AMOUNT TO THE DEPOSITOR'S ACCOUNT, THE BANK BECOMES THE OWNER OF THE PAPER, NOTWITHSTANDING A CUSTOM OR AGREEMENT TO CHARGE THE PAPER BACK TO THE DEPOSITOR IN THE EVENT OF DISHONOR.' DOUGLAS V. FEDERAL RESERVE BANK, SUPRA, PAGE 493. SEE, ALSO, OGDIN V. GOODWIN, 76 FED. (2D) 196, 197; COLORADO NATIONAL BANK OF DENVER V. NEWTON, 80 FED. (2D) 696, 698; SCOTT COUNTY V. KENT, 97 FED. (2D) 971, 973; DEITRICK V. MACCARTHY, 13 FED. SUPP. 850, 852; JOHNSON V. FIRST NATIONAL BANK AND TRUST COMPANY, 8 FED. SUPP. 788, 790; EQUITABLE TRUST COMPANY V. ROCHLING, 275 U.S. 248, 252.

IN THE PRESENT CASE, THE EXISTENCE OF ANY PURPOSE OR INTENTION THAT THE DEPOSIT WAS ACCEPTED ONLY FOR COLLECTION IS NEGATIVED BY THE FACT THAT THE BANK, IN FACT, HONORED CHECKS ISSUED BY THE DEPOSITOR AGAINST THE DEPOSIT. SEE PEARSON V. BRENNAN, 75 FED. (2D) 958, 961. IT APPEARS, THEREFORE, THAT WHEN THE CHECKS IN QUESTION WERE DEPOSITED IN THE BANK THE RIGHTS OF SHIELDS THEREIN WERE SURRENDERED TO THE BANK ( DOUGLAS V. FEDERAL RESERVE BANK, SUPRA, PAGE 494), AND WHEN THE BANK FORWARDED THE CHECKS FOR COLLECTION, IT FORWARDED THEM FOR COLLECTION "FOR ITSELF.' BURTON V. UNITED STATES, 196 U.S. 283, 304. AS OWNER OF THE CHECKS, THE BANK BECAME POSSESSED OF CERTAIN RIGHTS AGAINST THE GOVERNMENT, FOR THE UNITED STATES, AS DRAWER, HAD ENGAGED THAT UPON DUE PRESENTMENT THE CHECKS WOULD BE ACCEPTED AND PAID. USHER V. TUCKER COMPANY, 105 N.E. 360; BINGHAMTON PHARMACY V. FIRST NATIONAL BANK, 131 TENN. 711, 2 A.L.R. 1377, 1379; OGDIN V. GOODWIN, 76 FED. (2D) 196. IN THE LAST CITED CASE, FOR INSTANCE, IT WAS HELD IN EFFECT THAT A BANK WHICH ACCEPTED FOR DEPOSIT A CHECK WHICH WAS ENDORSED WITHOUT RESTRICTION BECAME THE OWNER THEREOF AND MIGHT, UPON DISHONOR, COLLECT THE FULL AMOUNT THEREOF FROM THE DRAWER.

IF IT WERE HELD IN THE PRESENT CASE THAT THE ANNUITY PAYMENTS REPRESENTED BY THE TWO UNPAID TREASURY CHECKS WERE DUE TO MR. SHIELDS BUT NOT YET PAID AT HIS DEATH, THEN UNDER THE TERMS OF THE STATUTE HIS SURVIVING SPOUSE WOULD BE ENTITLED TO THE FULL AMOUNT OF THESE PAYMENTS. AT THE SAME TIME THE LIABILITY OF THE UNITED STATES AS DRAWER OF THE TWO UNPAID CHECKS WOULD, AT LEAST AS TO THE BANK, REMAIN UNALTERED. CLEARLY, IT WAS NOT INTENDED BY THE CONGRESS THAT THE UNITED STATES SHOULD IN ANY INSTANCE BE REQUIRED TO PAY AN ANNUITY OBLIGATION, OR ANY PART THEREOF, TWICE. POSSIBLE, THEREFORE, SECTION 3 (F) SHOULD BE GIVEN A CONSTRUCTION WHICH, UNDER FACTS SUCH AS THOSE HERE PRESENT, WILL OBVIATE THE POSSIBILITY OF ANY SUCH RESULT.

AS PREVIOUSLY NOTED, WHEN THE BANK ACCEPTED THE CHECKS AND CREDITED THE AMOUNT THEREOF TO THE DEPOSITOR'S ACCOUNT, THE DEPOSITOR'S OWNERSHIP OF SAID ANNUITY PAYMENT CHECKS CEASED. THEY BECAME THE PROPERTY OF THE BANK. AT THE SAME TIME THERE CAME INTO EXISTENCE CERTAIN OBLIGATIONS ON THE PART OF THE UNITED STATES TO THE BANK WITH RESPECT TO THOSE CHECKS. THE MATTER WAS NO LONGER ONE BETWEEN THE UNITED STATES AND THE ANNUITANT; WITH THE TRANSFER THERE AROSE NEW INTERESTS, RELATIONSHIPS, RIGHTS, AND LIABILITIES.

UNDER THE CIRCUMSTANCES, IT APPEARS REASONABLE TO CONCLUDE THAT AS OF THE TIME OF SAID TRANSFER THE CHECKS CEASED TO REPRESENT "ANNUITY PAYMENTS DUE AN INDIVIDUAL BUT NOT YET PAID" WITHIN THE MEANING OF SECTION 3 (F). FOR, AT THAT TIME THE ANNUITANT, THROUGH HIS LEGAL REPRESENTATIVE, IN EFFECT RECEIVED PAYMENT FROM THE BANK IN THE FORM OF A DEPOSIT CREDIT. IT IS TRUE THE ANNUITANT CONTINUED LIABLE ON HIS ENDORSEMENT, AND THAT UPON NONPAYMENT OF THE CHECKS BY THE UNITED STATES THE BANK MIGHT LOOK TO THE ANNUITANT FOR RETURN OF THE AMOUNT OF THE DEPOSIT. BUT THIS "DID NOT IN THE LEAST VARY THE LEGAL EFFECT OF THE TRANSACTION; " IT MERELY MEANT THAT THE BANK MIGHT RECOVER THE AMOUNT OF THE PAYMENT UNDER CERTAIN CIRCUMSTANCES--- NOT THAT THE PAYMENT HAD NEVER BEEN MADE. BURTON V. UNITED STATES, SUPRA, PAGE 297; OGDIN V. GOODWIN, 76 FED. (2D) 196, 197.

IT BECOMES UNNECESSARY FOR PRESENT PURPOSES TO MAKE ANY DETERMINATION AS TO THE RIGHTS OF THE VARIOUS PARTIES WITH RESPECT TO THE AMOUNTS REPRESENTED BY THE CHECKS, BECAUSE, SINCE THE INVOLVED CHECKS LOST THEIR IDENTITY AS ANNUITY PAYMENTS, ANY RIGHTS FOR ASSERTING AGAINST THE UNITED STATES BY ANY OF THE VARIOUS PARTIES AT THE TIME OF THE ANNUITANT'S DEATH MUST TAKE THE FORM OF CLAIMS AGAINST THE UNITED STATES AND, AS SUCH, ARE FOR SETTLEMENT BY THIS OFFICE PURSUANT TO THE PROVISIONS OF SECTION 305 OF THE BUDGET AND ACCOUNTING ACT OF JUNE 10, 1921, 42 STAT. 24.