A-20699, FEBRUARY 8, 1928, 7 COMP. GEN. 470

A-20699: Feb 8, 1928

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DEFAULTING STOP-PAYMENT ORDERS AGAINST DRAFTS DRAWN BY A POSTMASTER WHOSE OFFICE IS BEING INVESTIGATED AND WHO IS SUBSEQUENTLY FOUND TO HAVE EMBEZZLED LARGE SUMS OF PUBLIC MONEY MAY NOT BE WITHDRAWN WHERE THE HOLDER BANK HAS NOTICE OF THE INVESTIGATION AND OF A PROBABLE SHORTAGE IN THE ACCOUNTS. WITH WHICH THE POSTMASTER APPEARS TO HAVE CARRIED HIS OFFICIAL ACCOUNTS. THE INSPECTORS REPORT THAT AT THIS TIME THEY ADVISED THE VICE PRESIDENT THERE WAS A PROBABILITY OF A LARGE SHORTAGE EXISTING IN THE POSTMASTER'S ACCOUNTS. THEY ADVISED THE BANK THAT IT WAS THEIR INTENTION TO REQUEST AUTHORITY TO DISPLACE THE POSTMASTER. THE RECEIPT OF SUCH ADVICES IS DENIED BY OFFICIALS OF THE BANK. 034 WITH A NOTATION ON THE CHECK THAT IT WAS FOR THE BALANCE OF PERSONAL FUNDS AND RECEIVED PAYMENT THEREOF IN CASH.

A-20699, FEBRUARY 8, 1928, 7 COMP. GEN. 470

DRAFTS - STOP-PAYMENT ORDERS - POSTMASTERS, DEFAULTING STOP-PAYMENT ORDERS AGAINST DRAFTS DRAWN BY A POSTMASTER WHOSE OFFICE IS BEING INVESTIGATED AND WHO IS SUBSEQUENTLY FOUND TO HAVE EMBEZZLED LARGE SUMS OF PUBLIC MONEY MAY NOT BE WITHDRAWN WHERE THE HOLDER BANK HAS NOTICE OF THE INVESTIGATION AND OF A PROBABLE SHORTAGE IN THE ACCOUNTS.

COMPTROLLER GENERAL MCCARL TO THE POSTMASTER GENERAL, FEBRUARY 8, 1928:

THERE HAS BEEN RECEIVED YOUR REQUEST DATED JANUARY 14, 1928, FOR DECISION WHETHER YOU MAY WITHDRAW STOP PAYMENT ORDERS AGAINST DRAFTS DRAWN BY L. F. RANDALL, FORMERLY POSTMASTER, HIALEAH, FLA., FOR $5,000 AGAINST THE POSTMASTER AT JACKSONVILLE, FLA., AND FOR $3,500 AGAINST THE TREASURER OF THE UNITED STATES, AND NEGOTIATED BY THE FORMER POSTMASTER TO THE FIRST STATE BANK OF HIALEAH, UNDER A STATEMENT OF FACTS WHICH MAY BE EPITOMIZED AS FOLLOWS:

POST-OFFICE INSPECTORS APPEARED AT THE HIALEAH POST OFFICE ON JUNE 15, 1927, TO MAKE AN INSPECTION BECAUSE OF SUSPECTED SHORTAGES IN THE ACCOUNTS OF THE POSTMASTER AND BEFORE MAKING THEIR INVESTIGATIONS THEY REQUESTED THE VICE PRESIDENT OF THE FIRST STATE BANK, WITH WHICH THE POSTMASTER APPEARS TO HAVE CARRIED HIS OFFICIAL ACCOUNTS, FOR A STATEMENT OF THE BALANCES OF THE ACCOUNTS. THE INSPECTORS REPORT THAT AT THIS TIME THEY ADVISED THE VICE PRESIDENT THERE WAS A PROBABILITY OF A LARGE SHORTAGE EXISTING IN THE POSTMASTER'S ACCOUNTS, AND THAT ON JUNE 16, THEY ADVISED THE BANK THAT IT WAS THEIR INTENTION TO REQUEST AUTHORITY TO DISPLACE THE POSTMASTER. THE RECEIPT OF SUCH ADVICES IS DENIED BY OFFICIALS OF THE BANK.

THE INSPECTORS CONTINUED THE INVESTIGATIONS AND BEFORE THE CLOSE OF THE EVENING'S WORK ON JUNE 16 THEY HAD FOUND A SHORTAGE OF $48,718.30 IN THE ACCOUNTS OF THE POSTMASTER. AFTER THE INSPECTION COMMENCED ON JUNE 15 THE POSTMASTER DEPOSITED WITH THE FIRST STATE BANK A DRAFT FOR $5,000, DRAWN BY HIM ON THE POSTMASTER AT JACKSONVILLE, FLA., AND A DRAFT FOR $3,500, DRAWN BY HIM ON THE TREASURER OF THE UNITED STATES, AND THE NEXT MORNING, WITH THE OPENING OF THE BANK FOR BUSINESS, THE POSTMASTER APPEARED AND DREW A CHECK AGAINST HIS OFFICIAL ACCOUNTS FOR $4,034 WITH A NOTATION ON THE CHECK THAT IT WAS FOR THE BALANCE OF PERSONAL FUNDS AND RECEIVED PAYMENT THEREOF IN CASH. HE WAS ARRESTED AND PLACED UNDER AN APPEARANCE BOND OF $25,000 BUT DEPARTED FOR PARTS UNKNOWN AND WAS REARRESTED IN LOS ANGELES, CALIF., BROUGHT BACK TO FLORIDA, SUBSEQUENTLY PLEADED GUILTY TO EMBEZZLEMENT OF PUBLIC MONEY, AND WAS SENTENCED FOR FIVE YEARS IN THE FEDERAL PENITENTIARY, ATLANTA, GA.

THERE APPEARS AT THIS TIME A SHORTAGE OF APPROXIMATELY $74,229.21. POST- OFFICE INSPECTORS ENTERED A STOP-PAYMENT ORDER AGAINST BOTH OF THE DRAFTS FOR $5,000 AND $3,500, RESPECTIVELY, AND THEY HAVE NOT BEEN PAID. THE FIRST STATE BANK OF HIALEAH IS CLAIMING PAYMENT THEREOF ON THE GROUND THAT IT ACCEPTED THE DRAFTS FROM THE POSTMASTER IN THE REGULAR COURSE OF BUSINESS AND THAT THEY CONSTITUTE VALID OBLIGATIONS OF THE UNITED STATES.

ASIDE FROM THE FACT THAT THE UNITED STATES APPEARS TO BE HOLDING TWO CERTIFIED CHECKS IN THE SUM OF $934 AND $1,100, RESPECTIVELY, WHICH THE BANK HAS REFUSED TO PAY, IT IS CLEAR THAT YOU ARE NOT AUTHORIZED TO WITHDRAW THE STOP-PAYMENT ORDERS AGAINST THE TWO DRAFTS FOR $3,500 AND $5,000 RESPECTIVELY. THE DRAFTS WERE DRAWN BY RANDALL AT THE TIME THE INSPECTORS WERE IN HIS OFFICE AND THE BANK OFFICIALS NOT ONLY HAD NOTICE OF THE INSPECTION IN PROGRESS BUT OF THE PROBABILITY OF A LARGE SHORTAGE IN THE ACCOUNTS. THESE FACTS, COUPLED WITH THE FURTHER FACT THAT THE BANK DID NOT NOTIFY THE INSPECTORS UNTIL JUNE 18 OF THE WITHDRAWAL OF $4,034 IN CASH, RAISE A SERIOUS QUESTION AS TO WHETHER THE DRAFTS WERE ACCEPTED IN REGULAR COURSE OF BUSINESS AND WITHOUT NOTICE OF ANY DEFECTS THEREIN. ANY EVENT THE POSTMASTER WAS ACTING OUTSIDE OF THE SCOPE OF HIS AUTHORITY AS POSTMASTER IN DRAWING THE DRAFTS WHEN HE KNEW THAT HE WAS LARGELY INDEBTED TO THE UNITED STATES FOR MONEYS EMBEZZLED, AND IT IS WELL SETTLED THAT EVEN A BONA FIDE PURCHASER FOR VALUE OF A CHECK IS CHARGED WITH KNOWLEDGE THAT PAYMENT IS SUBJECT TO THE EXISTENCE OF SUFFICIENT FUNDS ON DEPOSIT TO MEET IT. THE RULE IS CITED IN NATIONAL LOAN AND EXCHANGE BANK OF COLUMBIA V. LACHOVITZ, 39 A.L.R. 1237, WHERE A HOLDER FOR VALUE OF A CHECK HAD PRESENTED IT TO THE BANK AND RECEIVED PAYMENT THEREON, AND THE BANK HAD SUED FOR RETURN OF THE PAYMENT ON THE GROUND THAT A STOP-PAYMENT ORDER HAD BEEN ISSUED AGAINST THE CHECK. THE COURT SAID:

AS TO THE DEFENSE OF PURCHASER FOR VALUE: MR. LACHOVITZ TOOK THE CHECK CHARGED WITH THE KNOWLEDGE THAT ITS PAYMENT WAS SUBJECT TO TWO CONDITIONS- -- THAT THERE SHOULD BE SUFFICIENT FUNDS, AND THAT THERE SHOULD NOT BE A STOP ORDER. WHEN IT WAS FIRST PRESENTED THERE WERE NOT SUFFICIENT FUNDS, AND BEFORE IT WAS PAID THE BANK HAD RECEIVED A STOP NOTICE. FOR NEITHER OF THESE THINGS WAS THE BANK RESPONSIBLE. IT HAD DONE NOTHING TO INDICATE THAT THE CHECK WAS GOOD OR WOULD BE PAID.

WHEN THE BANK ACCEPTED THESE DRAFTS AS CASH ITEMS AND PERMITTED THE POSTMASTER TO RECEIVE FUNDS FROM THE BANK PENDING THE COLLECTION OF THE CHECKS OR DRAFTS, IT DID SO AT ITS OWN RISK. THE GOVERNMENT HAD A LEGAL RIGHT TO STOP PAYMENT OF THE CHECKS WHEN IT WAS DISCOVERED THAT THE POSTMASTER WAS LARGELY INDEBTED TO THE UNITED STATES, AND THE STOP PAYMENT ORDERS MAY NOT BE WITHDRAWN.