1. When installments of war-risk insurance and disability
compensation are paid to the guardian appointed under the state
law, the money ceases to be money of the United States, and if it
be deposited by the guardian in a bank that becomes insolvent, R.S.
3466, giving priority of payment to debt due the United States,
does not apply. P.
288 U. S.
433.
2. In respect of such moneys so paid and deposited, the guardian
is not an agency or instrumentality of the United States. P.
288 U. S. 436.
244 Ky. 68, 50 S.W.2d 64, affirmed.
Certiorari, 287 U.S. 590, to review the reversal of a judgment
recovered by the present petitioner for the full amount of his
account a guardian, etc., in an insolvent bank.
Page 288 U. S. 431
MR. JUSTICE BUTLER delivered the opinion of the Court.
Petitioner was a United States soldier in the World War and
while in the service suffered permanent mental incompetency. He
became entitled to receive from the United States war risk
insurance and disability compensation. [
Footnote 1] September 19, 1919, the county court of
Breathitt County, Kentucky, appointed for him the guardian above
named, who qualified and has ever since acted as such. The United
States paid to the guardian
Page 288 U. S. 432
the installments due his ward. The guardian deposited them in
the Hargis Bank & Trust Company. It became insolvent, and,
February 5, 1930, conformably to the laws of the state, all its
assets were taken over by respondent, acting as special deputy
banking commissioner and liquidating agent. At that time, the
guardian had on deposit $6,070.80 derived from such payments. The
assets of the bank were not sufficient to pay more than one-half
the total owing to depositors. Claiming priority under R.S. §
3466, [
Footnote 2] the guardian
demanded payment of his deposit in full. Respondent held that
petitioner was only entitled to share ratably with other creditors,
and refused to pay.
Petitioner brought this suit in the Circuit Court of Breathitt
County to enforce the asserted priority. That court gave him
judgment as prayed. The Court of Appeals reversed on the ground
that the bank was not indebted to the United States on account of
the deposit made by the guardian. 244 Ky. 68, 50 S.W.2d 64. The
question has not been considered here, and, decisions upon it in
the state courts being in conflict, [
Footnote 3] we granted a writ of certiorari. 287 U.S.
590.
Page 288 U. S. 433
Petitioner relies upon the clause of § 3466 declaring that,
whenever any person indebted to the United States is insolvent, the
debts due to the United States shall first be satisfied. He asserts
that, under acts of Congress later to be considered, the war risk
insurance and disability compensation paid to a guardian of an
incompetent veteran remains the money of the United States so long
as it is subject to his control, and suggests that the guardian is
a mere instrumentality of the United States for the disbursement of
such money for the benefit of the veteran. And he maintains that
the deposit here involved is money of the United States, and that
the bank is indebted to it therefor.
The pertinent substance of the provisions invoked by petitioner
follows. Section 21(1) and (2) of the World War Veterans' Act 1924
provides that, where any payment under the Act is to be made to a
person mentally incompetent, it may be made to the person who is
constituted guardian by the laws of the state or is otherwise
legally vested with responsibility or care of the claimant or his
estate. It authorizes the director to suspend payments to a
guardian who shall neglect or refuse to render to the director from
time to time an account showing the application of such payments
for the benefit of the incompetent. [
Footnote 4] Section 22 declares that such payments shall
not be assignable or subject to the claims of creditors, and that
they shall be exempt from taxation, but makes them subject to
claims of the United States under the Act against the veteran.
[
Footnote 5] Sections 21(3) and
26 provide that, in specified cases, insurance and disability
compensation
Page 288 U. S. 434
remaining unpaid or in the hands of a guardian at the death of
the veteran shall escheat to the United States. [
Footnote 6] Section 214 provides that, where
an incompetent veteran receiving disability compensation
disappears, the director may make payments to his dependents.
[
Footnote 7] Section 505
provides for punishment of guardians who shall embezzle such funds.
[
Footnote 8]
The guardian, appointed by the county court, was by the laws of
the state given the custody and control of the personal estate of
his ward, and was authorized to collect and receive the money in
question. Ky.Stats. § 2030. And unquestionably payment to the
guardian vested title in the ward, and operated to discharge the
obligation of the United States in respect of such installments.
Taylor v. Bemiss, 110 U. S. 42,
110 U. S. 45;
Lamar v. Micou, 112 U. S. 452,
112 U. S. 472;
Maclay v. Equitable Life Assurance Society, 152 U.
S. 499,
152 U. S. 503;
Martin v. First Nat. Bank, 51 F.2d
840, 844;
In re Estate of Stude, 179 Iowa, 785, 788,
162 N.W. 10;
State ex rel. v. Shawnee County Comm'rs, 132
Kan. 233, 243, 294 P. 915,
cert. denied, 283 U.S. 855.
Schouler, Dom. Rel., 6th ed. § 892.
The provisions for exemption, nonassignability, and suspension
of payments plainly imply the passage of title from the United
States to the veteran. The denunciation of embezzlement by
guardians is not inconsistent with that intention. These
regulations, like many to be found in pension laws, disclose a
purpose to safeguard to beneficiaries
Page 288 U. S. 435
the appropriations and payments made for their benefit
(
United States v. Hall, 98 U. S. 343,
98 U. S. 353;
Westfall v. United States, 274 U.
S. 256), and evince special solicitude for the
protection of veterans who, by reason of mental incompetency, are
unable to protect themselves. The clauses subjecting such payments
to claims of the United States against the veteran and providing
for escheat to the United States make against petitioner's claim.
Neither would be appropriate or necessary if the money paid to such
guardian continued to belong to the United States until actually
disbursed by him for the veteran's benefit.
Petitioner cites
United States v. Hall, supra. The
question there was whether Congress has power to prescribe
punishment for the embezzlement by guardians of pension money paid
them in behalf of their wards. The indictment showed that the money
alleged to have been embezzled was the property of the accused
guardian's ward. The court held that to insure transmission
unimpaired to the beneficiary to United States might annex such
conditions to the donation as it deemed appropriate, and that the
guardian was bound to accept the payment subject to the terms of
the grant, and that Congress had power to protect its gift until it
passed into the hands of the beneficiary. There is no suggestion in
the opinion that the United States had any interest as owner in the
money embezzled. The power of Congress to punish such
misappropriation is not limited to acts causing loss to the United
States.
Westfall v. United States, supra, pp.
274 U. S.
258-259. Petitioner also cites
Bramwell
v. U.S. Fidelity Co., 269 U.
S. 483. But, in that case, the United States itself was
the guardian, and, through its officer, the superintendent of an
Indian reservation, made the deposit which, upon insolvency of the
bank, was held a preferred claim under § 3466. The case is not
in point, as here, the guardian was appointed pursuant to state
law
Page 288 U. S. 436
to act for and on behalf of his ward. He was not an agent or
instrumentality of the United States.
Shippee v. Commercial
Trust Co., 115 Conn. 326, 161 A. 775;
Puffenbarger v.
Charter, 165 S.E. 541;
State ex rel. v. Shawnee County
Comm'rs, supra. It results that the deposit in question does
not belong to the United States, and, as indebtedness to it is
essential to priority, the guardian's claim under that section is
without merit. Other contentions made by petitioner are so plainly
inapplicable here as not to require discussion.
Judgment affirmed.
[
Footnote 1]
See Articles 3 and 4, War Risk Insurance Act of October
6, 1917, 40 Stat. 405, 409; titles 2 and 3, World War Veterans' Act
1924, approved June 7, 1924, 43 Stat. 615, 624, as amended (38
U.S.C. §§ 471-502, 511-518).
[
Footnote 2]
"Whenever any person indebted to the United States is insolvent,
or whenever the estate of any deceased debtor, in the hands of the
executors or administrators, is insufficient to pay all the debts
due from the deceased, the debts due to the United States shall be
first satisfied, and the priority established shall extend as well
to cases in which a debtor, not having sufficient property to pay
all his debts, makes a voluntary assignment thereof, or in which
the estate and effects of an absconding, concealed, or absent
debtor are attached by process of law, as to cases in which an act
of bankruptcy is committed."
31 U.S.C. § 191.
[
Footnote 3]
The decisions supporting petitioner's contention are:
State
ex rel. Spillman v. First State Bank, 121 Neb. 515, 237 N.W.
623,
Anderson v. Olivia State Bank, 243 N.W. 398. Those
opposed are:
Shippee v. Commercial Trust Co., 115 Conn.
326, 161 A. 775,
Puffenbarger v. Charter, 165 S.E. 541.
Cf. State ex rel. Soreason v. Security Bank, 121 Neb. 521,
237 N.W. 620;
Butler v. Cantley, 226 Mo.App. 1047, 47
S.W.2d 258;
Manning v. Spry, 121 Ia. 191, 96 N.W. 873.
[
Footnote 4]
43 Stat. 613, as amended by § 2, Act of July 2, 1926, 44
Stat. 791, § 2, Act of May 29, 1928, 45 Stat. 964. 38 U.S.C.
§ 450.
[
Footnote 5]
43 Stat. 613. 38 U.S.C. § 454.
[
Footnote 6]
Section 21(3) added by § 5, Act of July 3, 1930, 46 Stat.
993. 38 U.S.C. § 450. Section 26, World War Veterans' Act,
1924, 43 Stat. 614, as amended by § 3, Act of July 2, 1926, 44
Stat. 792. 38 U.S.C. § 451.
[
Footnote 7]
Added by § 21, Act of July 3, 1930, 46 Stat. 1000. 38
U.S.C. § 501a.
[
Footnote 8]
Added by § 20, Act of March 4, 1925, 43 Stat. 1312. 38
U.S.C. § 556.