The travel directed is necessary in the military service. FD 1401 P 1-06, ·15-06 A 0410-2.

By order of the Secretary of War:

/s/ J. A. ULIO,

J. A. Ulio,

Major General,

The Adjutant General.

The Army Register shows that General Fechet was appointed second lieutenant July 25, 1900, and accepted August 10, 1900; he was successively promoted, becoming a lieutenant colonel July 1, 1920. He was appointed Assistant to the Chief of Air Service, with the rank of brigadier general, April 25, 1927, and accepted April 25, 1927. He was appointed Chief of Air Corps, with the rank of major general, December 14, 1927, and accepted December 20, 1927. He was promoted to colonel July 17, 1929. He was relieved as major general, Chief of Air Corps, December 19, 1931. He was retired at his own request after 30 years' service, with the rank of major general, on December 31, 1931.

General Fechet's appointments as Assistant to the Chief of Air Service, and as Chief of Air Corps, and his retirement with rank of major general were in accordance with section 4c of the National Defense Act, added by the act of June 4, 1920, 41 Stat. 762, as follows:

Except as otherwise herein prescribed, chiefs and assistants to the chiefs of the several branches shall hereafter be appointed by the President, by and with the advice and consent of the Senate, for a period of four years, and such appointments shall not create vacancies. Any officer who shall have served four years as chief of a branch, and who may subsequently be retired, shall be retired with the rank, pay and allowances authorized by law for the grade held by him as such chief.

See Title 10 U. S. Code sections 6 and 1026.

Section 13-a of the same act, 41 Stat. 768 (10 U. S. C. 291), provides that the Air Corps shall consist of, among others, "one Chief of the Air Corps, with the rank of major general." Upon termination of his service as Chief of Air Corps, December 19, 1931 (or possibly December 13, 1931, 12 Comp. Gen. 641; 37 Op. Atty. Gen. 282) General Fechet reverted to the rank of colonel. He was retired as a colonel with the rank, pay, and allowances of a major general. But his office remained that of colonel. See Wood v. United States, 15 C. Cls. 151, 107 U. S. 414.

As General Fechet held the office of colonel it was competent to call him to active duty in that grade. This was done by the orders of March 10, 1942, supra. Rights to the active duty pay and allowances of a colonel vested in General Fechet upon his reporting for duty under such orders. Later orders can have no retroactive operation to change the rights thus vested. The orders of July 23, 1942, are effective only from the date issued.

Accordingly, General Fechet has been properly credited with the active duty pay and allowances of a colonel during the period of his claim, and you are not authorized to make payment on the subject voucher, representing additional pay and allowances for such period. The voucher will be retained in this office.

(B-28356)

BANKRUPTCY AND CIVIL-SERVICE RETIREMENT FUND

Moneys in the civil-service retirement and disability fund of a person who at the time of his filing of a petition in bankruptcy, and since, is employed in a position within the purview of the Civil Retirement Act of May 22, 1920, as amended, do not become part of his estate in the bankruptcy proceedings. A discharge in bankruptcy of a Government employee from a note securing a loan indebtedness to a private creditor which was listed on the bankrupt's schedule of liabilities and assigned to the United States subsequent to the filing of the petition in bankruptcy upon payment by the Federal Housing Administration of its obligation as insurer of the loan affords the bankrupt a complete legal defense to any action brought by the United States to recover such debt, thus precluding the earmarking of the moneys to the credit of the employee in the civil-service retirement fund for the purpose of setting off the amount of the Government's loss against moneys to be paid from such fund at some future date.

It is for administrative consideration whether it is in the interest of the United States to continue in its employment a Government employee who refuses to make good a loss to the Government resulting from his discharge in bankruptcy.

Comptroller General Warren to the National Housing Administrator, October 8, 1942:

I have a letter dated August 21, 1942, from the Assistant Commissioner, Federal Housing Administration, as follows:

In reply Refer to: MCP No. 617858, Charles and Bertha Kessler, 916 West Madison Avenue, Hyattsville, Maryland.

We have for consideration the case of Charles R. Kessler and Bertha V. Kessler of 916 West Madison Avenue, Hyattsville, Maryland, in which this Administration reimbursed the Commercial Investment Trust Incorporated of New York, N. Y., because of a claim this institution filed under its Contract of Insurance with this Administration, due to the default of the borrowers on a loan secured under Title I Regulations of the National Housing Act.

The note executed in this transaction is dated November 30, 1939. On March 2, 1941, the note went into default and subsequently Charles R. Kessler filed a Petition in Bankruptcy and was adjudicated a bankrupt on May 16, 1941. The first meeting of the Bankrupt Creditors was held June 24, 1941, and Mr. Kessler received his discharge on July 8. The last day set for filing objections to the bankrupt's discharge was August 4, 1941. The last date for filing Proof of Claim against the bankrupt's estate was six months from the date of the first meeting, or December 24, 1941.

The Commercial Investment Trust Incorporated filed claim with this Administration on this transaction on September 2, 1941 and we reimbursed them on September 25, 1941, at which time all right, title and interest in the note executed by Charles and Bertha Kessler were assigned to the United States of America. Charles R. Kessler is presently employed by the United States Post Office Department, Washington, D. C., as a clerk and has been employed in that position for approximately 14 years. Eventually Mr. Kessler will be eligible for annuity payments, or refund under the Civil Service Retirement Act.

In accordance with our policy on October 27, 1941, we informed the Civil Service Commission of our claim against this annuitant and requested that a "Set-off” be made, should a claim for annuity or refund of deductions be filed by Mr. Kessler.

It is the opinion of Mr. Kessler's attorney that this Administration does not hold valid security that would permit a claim against Mr. Kessler's Retirement Annuity Fund, because he contends that the note came into our possession subsequent to the date of Mr. Kessler's Discharge in Bankruptcy, and also since this obligation was listed in the Bankrupt's Schedule of Liabilities.

In previous cases where an employee is eligible for annuity and the employee has been discharged in bankruptcy, subsequent to the date we reimbursed the financial institution under the Regulations of the National Housing Act, the Civil Service Commission has taken the position that the employee is not relieved from the attachment of his Retirement and Annuity Fund, as this fund is not scheduled by the bankrupt as an asset and cannot be attached for distribution to creditors. The Civil Service Commission does not appear to have an established rule concerning the instant case.

The attached file is therefore referred to you for your consideration and it would be appreciated if a decision would be rendered concerning this Administration's right to place a safe-guard on the Retirement and Annuity Fund of Mr. Kessler.

It would appear that the authority to set off the obligation in question rests upon two propositions: (1) that moneys in the retirement fund deducted from the salary, pay, or compensation of an employee pursuant to the Civil Retirement Act of May 22, 1920, as amended, 5 U.S. C. 691 et seq, do not become part of the bankrupt estate; and (2) in the event said proposition is tenable, that the Government possesses a valid and enforceable claim in the amount of its loss against Mr. Kessler at such time as moneys to his credit in the retirement fund become due and payable.

The Civil Retirement Act, as amended by the act of May 29, 1930, 46 Stat. 475, 5 U. S. C. 719, makes compulsory certain deductions from the pay of employees who come within the purview of the act, and requires that the amounts so deducted be deposited into the Treasury of the United States to the credit of the "civil-service retirement and disability fund.” Refunds prior to retirement are authorized only in the event of absolute separation from the service or transfer to a position not within the purview of the act, and, even then, in the case of employees with 5 or more years of service, only to the extent of amounts deducted prior to January 24, 1942. See 21 Comp. Gen. 1000, 1002, 5 U. S. C. 724, as amended.

Section 18 of the amendatory act of May 29, 1930, 46 Stat. 479, 5 U.S. C. 729, expressly provides that:

None of the moneys mentioned in this chapter shall be assignable, either in law or equity, or be subject to execution, levy, or attachment, garnishment, or other legal process

It does not appear that Mr. Kessier became separated from the Federal service, or had been transferred to a position not within the purview of the Civil Retirement Act, prior to his adjudication as a bankrupt, or since. Such statutory conditions not having been met, he could not have obtained a refund of any part of his retirement deductions. Furthermore, in view of the provision above quoted. he could not have assigned them and they could not have been reached by his creditors under any legal process.

Section 70 (a) of the Bankruptcy Act, as amended. 11 U. S. C. 110, provides:

The trustee of the entire of a bankrupt sher be vested by operation of law with the title of the bunkrigs as of the face of the filing of the petition in bankruptcy or of the original pettin pigesng 21 arrangement or plan under this title, exorga medfor an au to grinery unach sa held to be exempt, to all (3) powers which he migh: bite exercised for his own benedit, but not those which he might have exere sed sollt die seme other person (5) property, ineneng rights of action wind grir a the ing of the petition he could by any means have transferred or what might have been levied upon and soud under judicial process against izm *. [Italics supplied.]

The bankrupt could have resigned from his Federal position at the time of the said bankruptcy proceedings, and thus would have perfected a right to a refund of his retirement deductions under the law in effect at that time. But, obviously, the personal prerogative of resigning is not a "power" which in any event could be exercised for the bankrupt by the trustee and, hence, would not be a power vesting in the trustee under the said provision of section 70 (a) (3) of the Bankruptcy Act. And as the Civil Retirement Act expressly prohibits assignment of the funds deposited in the Treasury and places them beyond levy or other legal process, they could not have been transferred by the bankrupt or levied upon and sold under judicial process, and, hence, do not come within the provisions of section 70 (a) (5).

That an inchoate right which could be perfected only by the personal action of the bankrupt could not be enforced by the trustee, see In re Furness, 75 F. (21) 985. Cf. Hull v. Farmers Loan & Trust Co., 245 U. S. 312. That governmental pensions and salaries are not affected by proceedings in bankruptcy, see Fisher v. Cushman, 103 F. 860, 863. See, also. Audubon v. Shufelt, 181 C. S. 575. That property not subject to be taken under process for enforcement of a demand is "exempt within the meaning of section 70 (a) of the Bankruptcy Act excluding exempt property from the provision vesting the trustee with title, see Stratton v. Ermis, 268 F. 533. That the words "except insofar as it is to property which is held to be exempt" are a qualification that excludes exempt property from all the provisions contained in the respective enumerations in the other clauses of section 70 (a) of the Bankruptcy Act, see Holden v. Stratton, 198 U. S. 202. That it was the intention of the Congress that property should not pass to the trustee which could not be the subject of conveyance or disposition by the bankrupt at the time the bankruptcy proceedings were inaugurated, see Hesseltine v. Prince, 95 F. 802; In re Russie, 96 F. 609; In re Cohn, 171 F. 568; Olmstead-Stevenson Co. v. Miller, 231 F. 69. That Federal statutes exempting money due any pensioner from attachment, levy, or seizure by or under any legal or equitable process, protect the funds until they have come safely into the hands of the

pensioner, although pension money received and invested or actually in the hands of a bankrupt at the time of adjudication is not exempt, see In re Bean, 100 F. 262; In re Stout, 109 F. 794; In re Jones, 166 F. 337. In this latter connection, see, also, Lawrence v. Shaw, 300 U. S. 245. Cf. Carrier v. Bryant, 306 U. S. 545.

In view of the statutory provisions and judicial precedents, supra, the conclusion appears justified that moneys in the retirement fund of an employee whose position is within the purview of the Civil Retirement Act, supra, and who continues in that position-or other position likewise under the act-do not become part of his estate in bankruptcy proceedings. Consequently, such moneys as may be in said fund remain available for payment to Mr. Kessler or his beneficiaries in accordance with applicable provisions of law or for set-off against debts owned by the employee to the United States. See 21 Comp. Gen. 1000, and cases cited therein.

The loan to Mr. Kessler by the Commercial Investment Trust, Incorporated, was insured by the Federal Housing Administration pursuant to Title I of the National Housing Act, as amended, 12 U. S. C. 1701, et seq. It appears from the chronology of events stated in the second paragraph of the Assistant Commissioner's letter, supra, that it was not until several months after default on the note and the filing of a petition in bankruptcy by the maker thereof that the Administration was called upon by the lending institution to indemnify its loss. It is on this latter date that the Administration took an assignment of the note upon which the loss was incurred. The courts uniformly have held under such circumstances that since the rights of creditors are fixed by the Bankruptcy Act as of the date of filing of the petition in bankruptcy, the obligation is not a debt of the United States but one due a private institution so far as its status in the bankruptcy proceedings is concerned. The subsequent assignment of the note to the Federal Housing Administration passed only such rights as the assignor possessed, which in the instant case was the right to file proof of claim as a general creditor of the bankrupt estate. United States v. Marxen, Trustee, 307 U. S. 200; Federal Housing Administrator v. Moore, 90 F. (2d) 32; In re Hansen Bakeries, 103 F. (2d) 665; In re Miller, 105 F. (2d) 926. Cf. Korman, Trustee v. Federal Housing Administrator, 113 F. (2d) 743.

Apparently, the debt was listed on the bankrupt's schedule of liabilities and notice was duly given the Commercial Investment Trust, Incorporated, of the first meeting of creditors. It is stated that subsequently the bankrupt was granted a discharge. It does not appear whether a proof of claim was ever filed but it has been held that where a provable claim against a bankrupt is duly hauled, it is included in the discharge regardless of whether then, je proves it or does not prove it. In re Wood, 283 F. KERAM