A-46388, JANUARY 17, 1933, 12 COMP. GEN. 492

A-46388: Jan 17, 1933

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THE CHECK WAS IMPROPERLY ISSUED. 1933: I HAVE YOUR LETTER OF DECEMBER 20. MAY BE LIFTED UPON THE SHOWING THAT SAID CHECK IS NOW IN THE HANDS OF A BONA FIDE HOLDER FOR VALUE WHO IS MAKING DEMAND FOR THE PAYMENT THEREOF. ARE AS FOLLOWS: IT APPEARS THAT ONE GEORGE K. THAT SUBSEQUENT TO THE ISSUANCE OF THE CHECK NOTICE WAS RECEIVED BY THE VETERANS' ADMINISTRATION FROM THE SECRETARY OF WAR THAT THE CERTIFICATE FURNISHED UNDER SECTION 303 (A) OF THE ACT WITH RESPECT TO THE VETERAN'S STATUS WAS IN ERROR. IT THEN APPEARING THAT THE VETERAN HAD NOT BEEN SEPARATED FROM THE MILITARY SERVICE UNDER HONORABLE CONDITIONS AND WAS NOT. WHEREUPON A STOP ORDER WAS PLACED AGAINST THE PAYMENT OF THE LOAN CHECK.

A-46388, JANUARY 17, 1933, 12 COMP. GEN. 492

CHECKS - BONA FIDE HOLDER - LIABILITY UNDER MISTAKE OF FACT WHEN THE GOVERNMENT FOLLOWS THE USUAL COMMERCIAL PRACTICE IN THE CONDUCT OF ITS BUSINESS IT INCURS THE RESPONSIBILITY OF PRIVATE PERSONS IN SIMILAR CIRCUMSTANCES, SO THAT, WHEN IT ISSUES CHECKS, IT BECOMES SUBJECT TO THE ORDINARY RULES APPLICABLE TO THE ISSUANCE OF NEGOTIABLE INSTRUMENTS BY PRIVATE PERSONS. WHEN A CHECK ISSUED BY A GOVERNMENT DISBURSING OFFICER PASSES INTO THE HANDS OF A BONA FIDE HOLDER FOR VALUE, PAYMENT THEREOF CAN NOT BE WITHHELD ON THE GROUND THAT THROUGH A MISTAKE OF FACT, THE CHECK WAS IMPROPERLY ISSUED.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JANUARY 17, 1933:

I HAVE YOUR LETTER OF DECEMBER 20, 1932, PRESENTING FOR CONSIDERATION THE QUESTION OF WHETHER A STOP ORDER PLACED BY YOUR OFFICE AGAINST PAYMENT OF CHECK NO. 1160575, DATED AUGUST 15, 1932, DRAWN TO THE ORDER OF GEORGE K. PAPPAS, IN THE AMOUNT OF $774, UNDER DISBURSING SYMBOL 99220, MAY BE LIFTED UPON THE SHOWING THAT SAID CHECK IS NOW IN THE HANDS OF A BONA FIDE HOLDER FOR VALUE WHO IS MAKING DEMAND FOR THE PAYMENT THEREOF.

THE FACTS IN THE CASE, AS STATED IN THE LETTER, AND AS SUPPLEMENTED BY THE RECORDS OF THIS OFFICE, ARE AS FOLLOWS: IT APPEARS THAT ONE GEORGE K. PAPPAS FILED AN APPLICATION FOR BENEFITS UNDER THE WORLD WAR ADJUSTED COMPENSATION ACT OF MAY 19, 1924, 43 STAT. 121, THE APPLICATION HAVING BEEN FILED WITH THE SECRETARY OF WAR PURSUANT TO SECTION 302 (A) OF THE ACT AS AMENDED JULY 3, 1926, 44 STAT. 826; THAT THE SECRETARY OF WAR PURSUANT TO SECTION 303 (A) OF THE ACT, SUPRA, CERTIFIED TO THE ADMINISTRATOR OF VETERANS' AFFAIRS CERTAIN ESSENTIAL DATA RELATING TO THE CLAIMANT; THAT THE ADMINISTRATOR OF VETERANS' AFFAIRS, UNDER THE PROVISIONS OF SECTION 303 (B), EXTENDED TO THE VETERAN THE BENEFITS PROVIDED FOR UNDER SECTION 501 OF THE BASIC ACT BY ISSUING AN ADJUSTED SERVICE CERTIFICATE, DATED MARCH 1, 1931, OF THE FACE VALUE OF $1,548; THAT THE VETERAN OBTAINED A 50 PERCENT LOAN UNDER SAID CERTIFICATE PURSUANT TO SECTION 502 (A), (I), AND (L) OF THE ACT AS AMENDED FEBRUARY 27, 1931, 46 STAT. 1429, THE AMOUNT OF THE LOAN BEING $774; THAT SUBSEQUENT TO THE ISSUANCE OF THE CHECK NOTICE WAS RECEIVED BY THE VETERANS' ADMINISTRATION FROM THE SECRETARY OF WAR THAT THE CERTIFICATE FURNISHED UNDER SECTION 303 (A) OF THE ACT WITH RESPECT TO THE VETERAN'S STATUS WAS IN ERROR, IT THEN APPEARING THAT THE VETERAN HAD NOT BEEN SEPARATED FROM THE MILITARY SERVICE UNDER HONORABLE CONDITIONS AND WAS NOT, THEREFORE, A "VETERAN" WITHIN THE DEFINITION OF THAT TERM AS GIVEN UNDER SECTION 2 (A) OF THE BASIC ACT, THUS RENDERING HIM INELIGIBLE FOR AN ADJUSTED SERVICE CERTIFICATE; WHEREUPON A STOP ORDER WAS PLACED AGAINST THE PAYMENT OF THE LOAN CHECK; THAT PURSUANT TO THIS STOP ORDER THE CHECK WHEN PRESENTED FOR PAYMENT WAS DISHONORED BY THE TREASURER OF THE UNITED STATES AND RETURNED TO THE INDORSERS; THAT THE CHECK IS NOW IN POSSESSION OF THE FIRM OF MARSHALL FIELD AND COMPANY, CHICAGO, ILLINOIS, WHICH FIRM HAS REQUESTED YOUR OFFICE TO RELEASE THE STOP ORDER AGAINST THE PAYMENT OF THE CHECK ON THE GROUND THAT SAID CHECK WAS CASHED BY THE FIRM AS SECOND INDORSER IN GOOD FAITH WITHOUT ANY NOTICE OF ANY DEFECT IN THE INSTRUMENT ITSELF.

IN THE PRESENT SUBMISSION IT IS STATED THAT THE FACTS OF THIS CASE APPEAR TO BE SIMILAR AND PARALLEL TO THE CASE OF BENSON RAWLINGS WHICH WAS THE SUBJECT OF A LETTER OF THIS OFFICE, DATED SEPTEMBER 23, 1927, A-19898, ADDRESSED TO THE SECRETARY OF THE TREASURY, AND ADVICE IS REQUESTED WHETHER, IN VIEW OF SAID LETTER,"THE STOP PAYMENT COULD BE LEGALLY LIFTED OR WHETHER MARSHALL FIELD AND COMPANY WILL HAVE TO STAND THE LOSS AS IN THE CASE OF BAKER, WATTS, AND COMPANY OF BALTIMORE, WHO WERE THE SECOND INDORSERS IN THE RAWLINGS CASE.'

THE LETTER OF THIS OFFICE IN THE RAWLINGS CASE, SUPRA, WAS BASED ON WHAT WAS UNDERSTOOD TO BE A BANKING RULE APPLICABLE TO BANKS WHEN ACTING AS COLLECTION AGENTS, TO WIT, THAT CHECKS PASSING THROUGH BANKS, UNTIL REACHING THE BANK ON WHICH DRAWN ARE IN A COLLECTION STATUS AND ENTITLE NONE (NO BANK) TO RECEIVE PAYMENT OF THE AMOUNT UNTIL THAT COLLECTION PROCESS HAS BEEN COMPLETED. IN THE INSTANT CASE SUCH BANKING RULE IS NOT FOR APPLICATION AS THE CLAIMANT IS NOT A BANK BUT A FIRM DEALING IN GENERAL MERCHANDISE, ALLEGING TO BE THE HOLDER OF THE CHECK IN DUE COURSE FOR VALUE.

WHEN THE GOVERNMENT, IN CONDUCTING ITS BUSINESS, FOLLOWS THE USUAL COMMERCIAL PRACTICE, IT INCURS THE RESPONSIBILITY OF PRIVATE PERSONS IN SIMILAR CIRCUMSTANCES. FLOYD'S ACCEPTANCES, 7 WALL 666; ALSO, COOK V. UNITED STATES, 91 U.S. 389. THEREFORE, WHEN THE CHECK IN QUESTION WAS ISSUED THE GOVERNMENT SUBJECTED ITSELF TO THE ORDINARY RULES APPLICABLE TO THE ISSUANCE OF NEGOTIABLE INSTRUMENTS BY PRIVATE PERSONS. THE GENERAL RULE OF LAW APPLICABLE TO NEGOTIABLE INSTRUMENTS IS THAT THE DRAWER OF A CHECK MAY ASK THE DRAWEE BANK NOT TO PAY IT, BUT THAT WHEN IT DOES SO THE DRAWER BECOMES LIABLE WHEN THE CHECK HAS REACHED A BONA FIDE HOLDER IN DUE COURSE FOR VALUE. 7 C.J. 701. THE STOP PAYMENT NOTICE WAS ISSUED IN THIS CASE BECAUSE OF THE CHECK HAVING BEEN ISSUED ON A CERTIFICATE GRANTED TO THE VETERAN UNDER A MISTAKE OF FACT. THE LAW IS WELL SETTLED THAT A MISTAKE OF FACT IN THE ISSUANCE OF A CHECK IS A PERSONAL DEFENSE AS CONTRADISTINGUISHED FROM A REAL DEFENSE, AND, BEING A PERSONAL DEFENSE, IT MAY NOT BE ASSERTED AGAINST A BONA FIDE HOLDER. 8 C.J. 797, 798. GOODMAN V. SIMMONDS, 20 HOWARD 343; HAMILTON V. FOWLER, 99 FED.REP. 18. HENCE, THERE IS FOR CONSIDERATION WHETHER THE FIRM OF MARSHALL FIELD AND COMPANY IS A BONA FIDE HOLDER OF THE CHECK IN QUESTION. A BONA FIDE HOLDER IN DUE COURSE FOR VALUE IS ONE WHO ACCEPTS THE INSTRUMENT UNDER THE FOLLOWING CONDITIONS: (1) THAT IT IS COMPLETE AND REGULAR ON ITS FACE; (2) THAT HE BECAME THE HOLDER BEFORE IT WAS OVERDUE AND WITHOUT NOTICE THAT IT HAD BEEN PREVIOUSLY DISHONORED, IF SUCH WAS THE FACT; (3) THAT HE TOOK IT IN GOOD FAITH AND FOR VALUE; AND (4) THAT AT THE TIME IT WAS NEGOTIATED TO HIM HE HAD NO NOTICE OF ANY INFIRMITY IN THE INSTRUMENT OR DEFECT IN THE TITLE FROM THE PERSON NEGOTIATING IT. 8 C.J. 464.

IN THE COPY OF A LETTER DATED OCTOBER 21, 1932, FROM THE FIRM OF MARSHALL FIELD AND COMPANY TRANSMITTED WITH THE SUBMISSION THE FOLLOWING IS STATED:

WE EXPLAINED TO YOU IN THE THIRD PARAGRAPH OF OUR LETTER OF SEPT. 9, THE EFFORT WE MADE TO IDENTIFY MR. PAPPAS. AFTER BEING SATISFIED AS TO HIS IDENTITY AND THAT THE DRAFT WAS REGULARLY ISSUED, WE HAD NO HESITANCY IN ACCEPTING IT PARTIALLY IN PAYMENT OF MERCHANDISE, THE DIFFERENCE BEING PAID TO HIM IN CASH.

SINCE WE RECEIVED YOUR LETTER OF SEPT. 20 WE HAVE SENT OUR INVESTIGATORS TO VARIOUS PLACES WITH A VIEW OF LOCATING GEORGE K. PAPPAS, THE PAYEE OF THE DRAFT, BUT HAVE NOT BEEN SUCCESSFUL. WE WOULD BE PLEASED TO HAVE YOU ADVISE US JUST WHAT ACTION THE GOVERNMENT WILL TAKE TO REFUND TO US THE $774.00 WE PAID ON THE DRAFT IN CASE IT SHOULD DEVELOP THAT GEORGE K. PAPPAS WAS NOT HONORABLY DISCHARGED FROM THE U.S. ARMY.

THE CIRCUMSTANCES UNDER WHICH THE CHECK WAS NEGOTIATED BY THE VETERAN TO MARSHALL FIELD AND COMPANY, AS DISCLOSED BY THE RECORD UNQUESTIONABLY CONSTITUTE THE FIRM A BONA FIDE HOLDER IN DUE COURSE FOR VALUE WITHIN THE CONTEMPLATION OF THE GENERAL LAW APPLICABLE TO NEGOTIABLE INSTRUMENTS, AND, AS SUCH HOLDER, SAID FIRM IS ENTITLED TO PAYMENT OF THE CHECK. UNITED STATES V. CHASE NATIONAL BANK, 252 U.S. 485; UNITED STATES V. NATIONAL EXCHANGE BANK OF BALTIMORE, 270 U.S. 527.

YOU ARE ADVISED, THEREFORE, THAT THE STOP PAYMENT ISSUED AGAINST THE CHECK IN QUESTION HEREIN MAY BE LIFTED, AND THE FIRM, MARSHALL FIELD AND COMPANY, SHOULD BE INSTRUCTED TO FORWARD THE CHECK TO THE TREASURY FOR PAYMENT, REFERRING TO THIS LETTER AS AUTHORITY FOR SUCH ACTION. HOWEVER, A CHARGE WILL BE RAISED AGAINST THE PAYEE OF THE CHECK AND COLLECTION ATTEMPTED AS IN OTHER CASES OF INDEBTEDNESS TO THE UNITED STATES.