failed bank should liquidate for a sufficient amount to make such payment. The Supreme Court of Florida, in McBride v. McBride, 195 So. 603, affirmed the judgment below, which held the guardian liable for loss of funds in a failed bank where the guardian was a director and failed to remove and invest the funds within a reasonable time, notwithstanding that he knew or was charged with knowledge of the bank's failing condition. The Supreme Court of Alabama, in Johnson v. Pugh, 193 So. 317, denied the appellant's contention that the Administrator of Veterans' Affairs had no standing to maintain a suit in the nature of a bill of review to set aside sundry orders of the Probate Court, entered over a period of years, authorizing certain investments that were illegal, and remove the guardianship to the circuit court for further administration thereof. The relief was granted. The Appellate Court of Illinois, Third District, in Menichetti v. Hines, 26 N. E. (2d) 999, sustained the objection of the Administrator of Veterans' Affairs on behalf of the incompetent veteran to the investment of the incompetent's funds in certain bonds. The objections were predicated on certain provisions of the trust indenture which the Administrator contended, and the court held, gave the bondholder less than a "first lien," which type of lien is required by the Illinois statute. The court held that the probate court's order authorizing such investment was void and hence was no defense. The Supreme Court of Illinois denied the petition for leave to appeal, thus approving the holding. A somewhat unusual and involved problem was presented because of the failure of National Surety Co. As surety, it had executed bonds of sundry guardians in many States. Because of its financial difficulties the New York court, in which State the company's principal office was situated, on April 29, 1933, entered an order of rehabilitation pursuant to New York statutes, which in substance authorized the superintendent of insurance to rehabilitate or liquidate New York insurance companies under certain circumstances upon orders of the Supreme Court of New York. Rehabilitation being impossible, an order of liquidation was entered June 1, 1934. Pursuant thereto the superintendent of insurance of New York took possession of all the company's assets and has been and still is engaged in liquidating the same and disposing of claims of creditors. Section 425, article XI, of the New York insurance law, effective March 15, 1932, provides that in such liquidations only those creditors whose claims "become absolute" before a date fixed by the court shall participate in distribution of the insurer's assets. The court fixed April 1, 1935, as the latest date on which creditors' claims could be filed. That constituted the date on or before which such claims must "become absolute." Because of the impossibility of obtaining an accounting, checking the assets, and ascertaining the true facts as to the existence or nonexistence of loss, the chief attorneys of the Veterans' Administration were instructed to file a claim on behalf of every beneficiary whose guardian had filed a bond executed by National Surety Co. as surety. There were 1,468 such claims filed on behalf of Veterans' Administration beneficiaries before April 1, 1935. Subsequent investigation of the facts, including physical check of assets, warranted the withdrawal of 1,374 claims. Of the 94 remaining claims on which proofs were obtained and presented by the Veterans' Administration, 64 were allowed by the liquidator for an aggregate sum of $138,489.88. Incident to the liquidation proceedings, the liquidator organized a new corporation named National Surety Corporation, transferred to it certain assets, and undertook to salvage the good will value of the old company, including its agency organization. The stock of the corporation was held by the liquidator for the creditors of the old company. Such stock was subsequently sold for approximately $10,000,000. Other funds were realized by the liquidator from suits brought against numerous defendants incident to certain corporate and contractual activities of the old company, and there was also some salvage from the assets theretofore pledged to the Reconstruction Finance Corporation to secure a loan obtained by the old company, which loan the liquidator paid. The Corporation is a going concern and apparently operating satisfactorily. By contract it assumed certain types of liabilities only of the National Surety Co. On the facts of 28 cases there was room for reasonable dispute as to liability of the Corporation and the extent thereof. The facts and the law question presenting the problem are reflected by the opinions in National Surety Corporation v. Laughlin, 172 So. 490, and Standard Accident Insurance Company et al. v. Stewart, 85 Pac. (2d) 277. Such controversies were compromised and the amount realized from the Corporation and from certain of the principals in the bonds was $76,449.51. In some claims a portion of the recovery was from the Corporation and a portion from the liquidator. The liquidator has paid dividends aggregating 45 percent of the amount of the claims allowed, and it is conservatively estimated that a final dividend of 8 or 10 percent will be realized. The amount agreed on with the Corporation, however, was paid in full. All cases have now been substantially disposed of except eight, involving approximately $40,000. These are in litigation. The controlling law questions are whether under the laws of the States wherein such claims arose, the surety may be successfully sued prior to obtaining a judgment against the principal in the bond (the guardian); and if he may, whether this difference between the law of such State and that of New York takes the case out of the rule announced in New York in the case of In re Southern Surety Company of New York (Kojchich), 12 N. E. 565, 276 N. Y. 537, 296 N. Y. S. 651. In that case it was held that the statutory expression, "become absolute" referred not to the occurrence of the event which gave rise to the surety's liability, but rather to the case having reached a procedural point which permitted the maintenance of a suit against the surety. It may now be reported that final disposition has been made of the approximately 400 cases that were pending in Illinois, Michigan, and Indiana growing out of certain illegal investments by certain banks therein. (See p. 34 of the 1935 report and p. 38 of the 1939 report). In the approximately 200 cases in Detroit, full recovery of principal together with interest at an average annual rate of about 2 percent was effected. Substantially all of the assets of this group of cases now consists of United States bonds ($800,000 out of a total of $900,000). In Indiana full recovery of principal, together with some interest, was effected, except there was a small loss in five cases. the group of 92 cases in Chicago involving claims against one closed In bank, full recovery of principal without interest was effected. The results finally obtained in Illinois were quite satisfactory. From 1931 to 1934 approximately 70 banks in that State were closed or consolidated in some manner, and these banks were fiduciaries in approximately 850 cases of beneficiaries of the Veterans' Administration. The total assets involved in these trusts were in excess of $2,000,000 face amount, many of which were much depreciated. However, in the final liquidations and as a result of the various legal activities engaged in on behalf of the beneficiaries, the available facts indicate that with respect to most of the banks complete recovery of principal with some interest was effected, and probably in only two banks will there be any loss of principal. There is a possibility that in one of these there will be no loss, but in the other there will probably be a loss of about 15 percent of $46,000. The problems growing out of the investment difficulties which became acute during the period 1931-34 have very largely been solved and most of the litigation disposed of. Some hundreds of real-estate mortgage notes and bonds were necessarily accepted in connection with the various settlements negotiated, because other assets available were insufficient. It is gratifying to report that the greater part of such depreciated assets has now been liquidated. The records available covering substantial portions thereof indicate that as a whole the prices at which liquidation occurred equaled or exceeded the agreed values at which such assets were received. However, there were in some individual instances relatively small losses upon liquidation, and in other cases there were some gains. APPEALS During this fiscal year appellate decisions were rendered in 16,377 cases, involving 32,143 issues, the ratio of decisions to appellants being 1.96. During the same period, 1,360 cases were remanded for further development of the evidence by agencies of original jurisdiction. At the close of this fiscal year appeals were pending on 10,291 cases. This figure represents a reduction from a pending load of 10,666 cases as of June 30, 1939. Of the cases in pending appellate status 3,857 were physically before the Board of Veterans' Appeals, 1,128 had been certified as ready for appellate consideration and were awaiting recall, 4,900 were pending development of the evidence and certification, by the agencies of original jurisdiction, that the cases were ready for appellate consideration, and 406 were pending for other reasons. Of the 3,857 cases physically before the Board of Veterans' Appeals, formal hearings were pending in 913. During the year formal recorded hearings were held in 7,118 cases. For Benefits to veterans of all wars and their dependents, as well as to veterans of the Regular Establishment and their dependents, under the various laws administered by the Veterans' Administration were involved in the cases receiving appellate consideration. an analysis by wars and kind of claim see table 52. The majority of the appeals considered were from decisions by agencies of original jurisdiction in the field. Whether the appeals involved cases which were centralized or cases which were decentralized, the responsibility for the development of all evidence pertinent to the questions in issue rested upon the agencies of original jurisdiction. PERSONNEL The following itemization shows the net increase in the number of positions authorized and the net increased expenditures for salaries during the fiscal year 1940: The net increases listed above were due entirely to the operation of additional hospital and domiciliary facilities, the hospital beds having increased 4,858 and the domiciliary beds 2,152 during this year. Effective May 1, 1940, a change in employment contracts for approximately 9,000 employees, designated as foodhandlers, granted them the privilege of taking one or two meals per day in lieu of full subsistence. It is estimated that this policy will require additional expenditures slightly in excess of $1,500,000 during the fiscal year 1941. At the beginning of this fiscal year, an 8-hour-day schedule was placed in operation for employees at field stations. The initial adjustment necessary to provide for this change in the hours of employment required approximately 2,272 additional positions carrying annual salaries of $2,464,380, which positions having been authorized prior to the start of this year are included in the total for the fiscal year 1939. There were 83 veterans who took advantage of an agreement between the Veterans' Administration and the United States Civil Service Commission, whereby disabled veterans hospitalized or domiciled in our facilities could receive the necessary training to qualify for civil-service examinations for the positions of telephone and elevator operators. In making new appointments and in effecting discontinuances, the policy of extending preference to ex-service employees has been carefully followed. The same preference has been extended in filling vacancies in staff positions. At the close of this year 66.27 percent of the male, and 11.91 percent of the female employees on the rolls of the Veterans' Administration were ex-service, while 48.7 percent of the total personnel had such status. |