B-177344 April 20, 1973
B-177344: Apr 20, 1973
Chairman: Reference is made to your request of February 26. The Administration will not return such currency to the Alms. Was introduced for the relief of Dr. Was adopted referring the bill to the Chief Commissioner of the Court of Claims in accordance with 28 U.S.C. 1492 and 2509. It was determined that our Office could not appropriately issue an opinion. The congressional reference proceeding is still pending under the caption Doctor Donald J. Copies of the petition and answer filed in this matter are enclosed for the Committee's information. We are constrained from taking a position on H. Was informed that the pledged livestock had been sold by Mr. Payments on the Diffie loan account were current at this time.
B-177344 April 20, 1973
The Honorable Peter W. Rodino, Jr. Chairman, Committee on the Judiciary House of Representatives
Dear Mr. Chairman:
Reference is made to your request of February 26, 1973, for our views on H. R. 1371, 93d Congress, a bill for the relief of Dr. and Mrs. Donald J. Alm.
The bill would require the Secretary of Agriculture to pay to Dr. and Mrs. Alm the sum of $20,299.22 plus 7.5 percent interest beginning March 10, 1972, through the date of enactment. The bill states in part:
***The kidnapper of the Alms' son had been granted a loan for such sum by the Farmers Home Administration, and on March 10, 1972, he used specially marked United States currency (given him by the Alms for the returnof their son) to repay the Administration for such loan. The Administration will not return such currency to the Alms.
By letter dated October 24, 1972, the Acting Secretary of Agriculture requested our opinion whether his Department could legally comply with the Alms' demand for the return of the ransom money. Subsequently, we learned that on October 12, 1972, a bill, S. 4097, 92d Congress, was introduced for the relief of Dr. Alm; and that on the same date a resolution, S. 379, 92d Congress, was adopted referring the bill to the Chief Commissioner of the Court of Claims in accordance with 28 U.S.C. 1492 and 2509. In view of the pendency of the congressional reference proceeding, and after discussing the matter with representatives of the Justice Department, it was determined that our Office could not appropriately issue an opinion.
The congressional reference proceeding is still pending under the caption Doctor Donald J. Alm v. United States. Cong. Ref. No. 10-72. Copies of the petition and answer filed in this matter are enclosed for the Committee's information. We are constrained from taking a position on H. R. 1371 for the same reason that we could not issue an opinion to the Secretary of Agriculture. However, the following discussion of the facts presented to us by the Department of Agriculture, and other considerations relative to this matter, may be of some interest to the Committee.
In 1970 the Farmers Home Administration (FHA) had granted an operating loan in the amount of $22,000 to Mr. and Mrs. Joseph R. Diffie, receiving in return a lien on certain of the borrowers' chattels, including livestock. On March 9, 1972, Mr. Allen R. Whelan, FHA County Supervisor, was informed that the pledged livestock had been sold by Mr. Diffie, in violation of the security agreement. Payments on the Diffie loan account were current at this time. On the same day, Mr. Whelan visited the Diffie farm, spoke to several neighbors of the Diffies', and confirmed that the livestock has apparently been sold in August or September of 1971. At 6 p.m. on March 9, Mr. Whelan made a demand upon Mrs. Diffie--in Mr. Diffie's absence--for an accounting of the proceeds of the sale.
On March 10, 1972, at about 10 a.m., Mr. Diffie telephoned the FHA officials to advise that he would visit their office later in the day. At about noon on March 10, Mr. Diffie arrived at the FHA office in Alma, Wisconsin, and, after some discussion, agreed to repay his loan in full. Mr. Duffie then went to his truck and returned with a suitcase, from which he produced two bundles of $20 bills of $5,000 each, two bundles of $10 bills of $5,000 each, and an additional $297.20, for a total amount of $20,297.20--the full balance due on his loan. Present during this time were Mr. Whelan, Mr. Dunne Wilman, FHA Assistant County Supervisor, Mrs. Lois B. Scharr, FHA Chief Clerk, and two sheriff's deputies who had been requested to provide security. An entry in FHA's case record for the Diffie loan, dated March 10, 1972, was quoted in part in an investigation report by the Agriculture Department's Office of the Inspector General, Midwest Region, as follows:
Seems funny at this time to get so much money in $10.00 and $20.00 bills. DIFFIE claimed that he had made the money in cattle futures. Also admitted that he had sold all the cattle for $55,000.00 and paid off other loans with his father and uncle and used FHA money to play the livestock market in cattle futures. DIFFIE was cool and collected and gave a convincing story, but the County supervisor felt that under the circumstances he should take the money.
Accordingly, after counting the money--which took one and one-half hours-- Mr. Whelan and Mrs. Scharr accepted Mr. Diffie's payment, and marked his original note "paid in full." On the same day, the cash was exchanged for a money order and the money order was transmitted to the Federal Reserve Bank at Minneapolis, Minnesota.
On March 11, 1972--the day following the payment--FHA officials were informed by the Federal Bureau of Investigation that Mr. Diffie was suspected of having kidnapped the Alms' son, and that the cash paid by Mr. Diffie to FHA appeared to be part of the ransom money provided byt he Alms. Mr. Diffie was subsequently convicted of kidnapping; and an FBI check of serial numbers confirmed that the cash paid by Mr. Diffie to the FHA was part of the ransom money, although the record before us does not indicate that the money itself was otherwise specially marked. The Acting Secretary's letter to us stated that on March 10 the FHA officials had no actual or constructive knowledge that the money paid by Mr. Diffie had been illegally obtained; no even that a kidnapping had occurred. This was confiremed by a letter dated October 3, 1972, from the Special Agent in Charge of the FBI Milwaukee Office to the Agriculture Department's Regional Attorney in Chicago, stating that Mr. Diffie had not been developed as a suspect on March 10.
By letter dated September 14, 1972, the alms submitted a written claim to FHA demanding the return of the $20,297.20. On September 18, FHA advised the Alms that the agency "would not, as a matter of law be bound to return such cash payment."
The Acting Secretary's submission to us stated, in part:
Court cases hold that cash accepted in the normal course of business, for value, without actual or constructive knowledge that it has been illegally obtained, need not be returned. See Ohio Casualty Ins. Co. v. Smith, 297 F. 2d 265 (7th Cir. 1962); Transamerica Ins. Co. v. Long, 318 F. Supp. 156 [W.D.Pa. 1970].***
As indicated by the numerous judicial precedents and other authorities cited in the Ohio Casualty and Transamerica opinions, there is no doubt that the foregoing statement accurately summarizes the general rule applied byt he courts in dealing with transfers of money unlawfully obtained. This general rule precluding recovery represents an exception to traditional priciples of property law that a wrongdoer can either acquire nor pass legal title to property obtained by an unlawful act, 73 C. J. S., Property, Sec. 15, pp. 207, 210, and was developed by the courts primarily to accommodate the prictical needs of commerce.
The policy considerations upon which the general rule is premised are indicated inthe following language quoted with approval by the United States Supreme count in Holly v. Missionary Society, 180 U.S. 284, 293 (1901):
It is absolutely necessary for practical business transcations that the payee of money in due course of business shall not be put on inquiry at his peril as to the title of the payer. Money has no earmarks. The purchaser of a chattel or a chose in action may by inquiry in most cases acertain the right of the persons from whom he takes the title; but it is generally impracticable to trace the source from which the possessor of money has derived it. It would introduce great confusion into commerical dealings if the creditor who receives money in payment of a debt is subject to the risk of accounting therefor to a debt is subject to the risk of accounting the debtor obtained it from him by felony or fraud. The law wisely, from considerations of public policy and convenience and to give security and certainty to business transactions, adjudges that the possession of money vests a title in the holder as to third persons dealing with him and receiving it in due course of business and in good faith upon a valid consideration.***
In addition, the courts have applied in the context of transfers of money unlawfully obtained the principle that where the equities are equal, the law will not transfer a loss from one innocent party to another. See, e.g., Holly v. Missionary Society, supra, 180 U.S. at 295; Transamerica v. Long, supra, 318 F. Supp. at 160.
If the general rule described above applies to the instant matter, the FHA officials has a legal right to accept and retain Mr. Diffie's payment; and had no authority to waive such rights by returning this money to the Alms See Bausch & Lomb Optical, Co. v. United States, 78 Ct. Cl. 584, cert. denied, 292 U.S. 645 (1934).
It is clear that the FHA officials accepted Mr. Diffie's payment for a valuable consideration, in the formof satisfaction of a pre-existing debt. Transamerica v. Long, supra. Also, the information presented to us indicate that he FHA officials had no knowledge of the source of Mr. Diffie's payment at the time they accepted it; and that these officials generally acted without willful dereliction or dishonesty with respect to the transaction. This conclusion appears sufficient to satisfy the standard of good faith applicable to commerical transactions. See, e.g., Graham v. White-Phillips Co., Inc., 296 U.S. 27 (1935); Murray v. Lardner, 69 U.S. (2 Wall.) 110 (1864); Bowling Green, Inc. v. State Street Bank and Trust Co., 425 F. 2d 81, 85 (1st Cir. 1970); compare Lytle v. Lansing. 147 U.S. 59, 70-71 (1893).
However, apart from the foregoing, the facts presented in this matter differ, both in kind and in degree, from the factual contexts considered in any of the cases we have dealing with transfers of money unlawfully obtained. In the present case, Mr. Diffie was able to produce overnight in excess of $20,000 in cash, arranged precisely in bundles of $10 and $20 bills. While the FHA officials had reason to believe that Mr. Diffie had sold his cattle, their information was that the sale had occurred at least six months prior to his presentation of this cash. Mr. Diffie claimed that the cash was actually derived from the proceeds of his investments in cattle futures.
Considering the amount of the cash payment and the brief period clapsing between the payment and FHA's demand for an accounting, the conclusion seems inescapable that Mr. Diffie must have had this cash on had or readily available on March 9, 1972.
Mr. Diffie offered no explanation as to why he would have liquidated his investments in advance of FHA's demand for an accounting. He apparently did not attempt to explain--nor can we imagine any reasonable explanation for--the form of the payment, i.e.., five hundred $20 bills and one thousand $10 bills arranged in four bundles of $5,000 each. While there are several precedents which apply the general rule against recovery to transfers of money which appear to have been unusual in some respects, wwe have not found any precedent on this subject addressing circumstances which, viewed as a whole, compare to the bizarre factual context presented here. See State Bank v. United States, 114 U.S. 401 (1885), and First National Bank of Birmingham, v. Gilbert & Clay, 123 La. 845, 49 So. 593 (1909). We are also unaware of any precedent dealing with a cash payment which, as in the present case, appears in its form to be inherently unusual or suspicious.
In view of the circumstances relating to the present transaction, it could be argued that the general rule against recovery is inapplicable by its terms. As stated by several authorities, application of the general rule appears to be conditioned upon the presence of a transfer of money in "due course of business." While we have not found any case in which a court has rescinded a transfer of money upon such ground, there are few corceivable circumstances more out of harmony with a concept of due course--in at least a general sense--than the instant situation.
Also, the judicial observation that "money has no earmarks" provides an important promise in the general rule but is inapplicable to the instant facts. Here Mr. Diffie's payment to FHA was identifiable and traceable to the ransom money as a certainty. The instant factual context thus presents a combination of factors absent in any of the judicial precedents applying the general rule against recovery--a highly unusual transaction together with a transfer of clearly "earmarked" money.
Whether or not the consideration discussed herein are sufficient to provide a legal basis for recovery, it could be argued that they do at least justify a payment as an equitable claim or gratuity. In this connection, Mr. Diffie's payment could be regarded as a windfall to the Government in the sense that it was accepted in liquidation of a claim which probably would have been otherwise uncollectible.
ELMER B. STAATS Comptroller General of the United States