A-56089, JULY 17, 1934, 14 COMP. GEN. 50

A-56089: Jul 17, 1934

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THERE HAS BEEN A CONCURRENT RECOVERY THE AMOUNT RECOVERED FROM THE ENDORSERS IS FOR TREATING AS AN EXCESS COLLECTION AND. IS PROPERLY FOR REFUNDING TO THE INNOCENT ENDORSERS. THERE IS NO AUTHORITY IN THE GOVERNMENT TO COLLECT FROM MONEYS DUE THE FORGER FOR THE PURPOSE OF INDEMNIFYING THE ENDORSERS SUSTAINING THE LOSS. AS FOLLOWS: I HAVE YOUR DECISION OF MAY 18. YOU ARE ADVISED THAT SETTLEMENT HAS BEEN ACCOMPLISHED. AMOUNTS DUE BENEFICIARIES WHO HAD IMPROPERLY NEGOTIATED CHECKS TO WHICH THEY WERE NOT ENTITLED AND ON WHICH RECLAMATION HAD BEEN EFFECTED BY THE TREASURY DEPARTMENT. AMOUNTS SO WITHHELD WERE EITHER TRANSMITTED TO THE TREASURY DEPARTMENT AT INTERVALS OR UPON COMPLETION OF RECOVERY OF THE AMOUNT INVOLVED FOR THE PURPOSE OF REIMBURSING THE ENDORSERS FROM WHOM RECLAMATION HAD BEEN EFFECTED.

A-56089, JULY 17, 1934, 14 COMP. GEN. 50

CHECKS - FORGED ENDORSEMENT - CONCURRENT RECOVERIES FROM ENDORSERS AND FORGERS - OFFSET WHERE THE GOVERNMENT HAS PAID A CHECK ON A FORGED ENDORSEMENT OF THE PAYEE'S NAME, THE UNITED STATES HAS A RIGHT TO RECOVER BACK THE AMOUNT PAID FROM THE FORGER OR FROM THE ENDORSERS ON THE CHECK, AND HAS THE FURTHER RIGHT TO PROCEED AGAINST EACH CONCURRENTLY, BUT WHEN, HOWEVER, THERE HAS BEEN A CONCURRENT RECOVERY THE AMOUNT RECOVERED FROM THE ENDORSERS IS FOR TREATING AS AN EXCESS COLLECTION AND, AS SUCH, IS PROPERLY FOR REFUNDING TO THE INNOCENT ENDORSERS. IF A FORGER OF A GOVERNMENT CHECK HAS A VALID CLAIM AGAINST THE UNITED STATES, THE GOVERNMENT MAY SET OFF THE AMOUNT OF HIS INDEBTEDNESS TO THE GOVERNMENT ARISING FROM THE FORGERY OF THE CHECK AGAINST ANY SUM DUE HIM ON THE CLAIM--- THERE BEING AN INHERENT RIGHT IN THE GOVERNMENT TO SET OFF AGAINST AN AMOUNT DUE A CLAIMANT ANY SUM THE SAME PERSON OWES THE GOVERNMENT, WHICH RIGHT MAY BE EXERCISED BEFORE RESORTING TO OTHER REMEDIES, SUCH AS PROCEEDING AGAINST THE ENDORSERS ON THE BREACH OF THEIR CONTRACT OF ENDORSEMENT GUARANTEEING THE GENUINENESS OF ALL PRIOR ENDORSEMENTS. WHERE A GOVERNMENT CHECK HAS BEEN PAID ON A FORGED ENDORSEMENT OF THE PAYEE'S NAME AND THE AMOUNT THEREOF HAS BEEN PROPERLY AND DULY RECLAIMED FROM THE ENDORSERS AND THE AMOUNT SO RECOVERED HAS BEEN PAID TO THE RIGHTFUL PAYEE, THERE NO LONGER EXISTS A DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE FORGER AND THE UNITED STATES SO THAT, THEREAFTER, THERE IS NO AUTHORITY IN THE GOVERNMENT TO COLLECT FROM MONEYS DUE THE FORGER FOR THE PURPOSE OF INDEMNIFYING THE ENDORSERS SUSTAINING THE LOSS, THE MATTER THEN BEING A PRIVATE ONE FOR ADJUSTMENT BETWEEN THE FORGER AND THE ENDORSERS SUFFERING THE LOSS.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JULY 17, 1934.

THERE HAS BEEN RECEIVED YOUR LETTER OF JUNE 9, 1934, AS FOLLOWS:

I HAVE YOUR DECISION OF MAY 18, 1934, A-55086, IN THE CASE OF MRS. ELIZA BOYKIN, RELATIVE TO THE FRAUDULENT NEGOTIATION OF GOVERNMENT CHECKS ISSUED IN HER FAVOR. WITH REFERENCE TO THE LAST PARAGRAPH OF YOUR COMMUNICATION, YOU ARE ADVISED THAT SETTLEMENT HAS BEEN ACCOMPLISHED.

PRIOR TO THE RECEIPT OF YOUR DECISION OF MAY 2, 1934, A-46902, IN THE CASE OF THOMAS J. JACKSON, XC-1268004, AND YOUR DECISION OF MAY 12, 1934, A-47978, TO THE SECRETARY OF THE TREASURY IN THE CASE OF JOHN P. WADDEN, C -278062, IT HAD BEEN THE PRACTICE OF THE ADMINISTRATION TO WITHHOLD, AT THE REQUEST OF THE TREASURY DEPARTMENT, AMOUNTS DUE BENEFICIARIES WHO HAD IMPROPERLY NEGOTIATED CHECKS TO WHICH THEY WERE NOT ENTITLED AND ON WHICH RECLAMATION HAD BEEN EFFECTED BY THE TREASURY DEPARTMENT. AMOUNTS SO WITHHELD WERE EITHER TRANSMITTED TO THE TREASURY DEPARTMENT AT INTERVALS OR UPON COMPLETION OF RECOVERY OF THE AMOUNT INVOLVED FOR THE PURPOSE OF REIMBURSING THE ENDORSERS FROM WHOM RECLAMATION HAD BEEN EFFECTED.

THIS PROCEDURE HAD BEEN ESTABLISHED AFTER YOUR DECISION RENDERED ON FEBRUARY 8, 1927 (6 COMP. GEN. 513) IN THE CASE OF JOHN INABINET, WHERE DUAL RECOVERY OF THE AMOUNT INVOLVED IN THE FRAUDULENT NEGOTIATION OF A CHECK DUE THIS BENEFICIARY WAS EFFECTED BY THE RECLAIMING FROM THE ENDORSING BANK AND BY WITHHOLDING FROM AN AWARD OF INSURANCE IN FAVOR OF THE FRAUDULENT ENDORSER. IT WAS HELD IN THIS DECISION THAT REFUND SHOULD NOT BE MADE TO THE FRAUDULENT ENDORSER AND PAYMENT WAS AUTHORIZED AND MADE TO THE BANK.

IN YOUR DECISIONS OF MAY 2, 1934, AND MAY 12, 1934, YOU HOLD, HOWEVER, THAT THERE IS NO AUTHORITY OF LAW FOR THE WITHHOLDING OF AMOUNTS PAYABLE UNDER THE ACTS GOVERNING THE VETERANS ADMINISTRATION. IN YOUR LATER DECISION OF MAY 18, 1934, REFERRED TO IN THE ABOVE, YOU STATE, HOWEVER, THAT YOUR OFFICE WILL DIRECT RECLAMATION OF THE CHECKS INVOLVED AND THAT "WHEN RECLAMATION OF THE PROCEEDS OF THE INVOLVED CHECKS SHALL HAVE BEEN MADE ANY SUM RECOVERED BY YOUR ADMINISTRATION THROUGH THE WITHHOLDING OF PAYMENTS OF AMOUNTS DUE THE WRONGFUL NEGOTIATOR WILL BE FOR PAYMENT ON A PRO RATA BASIS TO THE ENDORSERS WHO SHALL HAVE SUFFERED A LOSS ON THE CHECKS IN QUESTION. * * *"

IN VIEW OF THE CIRCUMSTANCES AND THE FINDINGS IN YOUR SEVERAL DECISIONS, THERE IS SUBMITTED FOR YOUR CONSIDERATION AND ADVICE A STATEMENT SHOWING THE DETAILS AND STATUS OF THE FOLLOWING LISTED CASES TO WHICH THE PROCEDURE DESCRIBED HAS BEEN OR IS NOW BEING SUPPLIED:

STOVALL, HARRY S ----------------------------------- C-350320

PROTHERO, ELMER CHARLES ---------------------------- C-1436949

MOFFATT, RALPH ------------------------------------- C-452395

WATERHOUSE, JOHN R --------------------------------- C-375637

WADDEN, JOHN PETER --------------------------------- C-278062

ANDERSON, MRS. TERESA A ---------------------------- C-624128

DIAMOND, MAURICE ----------------------------------- C-1049415

LOPEZ, ADOLFO -------------------------------------- C-382766

VARVARA, NATHAN ------------------------------------ C-505465

BOYKIN, ARCHIE ------------------------------------- C-128189

ROLL, GERALD W ------------------------------------- XC-833478

ROSE, TONY ----------------------------------------- A-2581592

IN THE FUTURE, CASES OF THIS NATURE WILL BE SUBMITTED FOR YOUR DETERMINATION AS THEY ARISE. IT MAY BE STATED THAT INFORMAL ADVICE HAS BEEN RECEIVED FROM THE TREASURY DEPARTMENT THAT CERTAIN SUMS RECENTLY RECOVERED BY DEDUCTIONS AND FORWARDED TO THAT DEPARTMENT HAVE NOT BEEN APPLIED TO REIMBURSE ENDORSERS.

IT IS A GENERAL RULE THAT WHERE A PAYMENT HAS BEEN MADE BY THE DRAWEE OF A CHECK UNDER A FORGED ENDORSEMENT OF THE PAYEE'S NAME, THE DRAWEE OF SUCH A CHECK MAY RECOVER BACK THE AMOUNT PAID, EITHER (1) FROM THE FORGER ON A "DEBT," OR "INDEBITATUS ASSUMPSIT," COUNT OR (2) FROM THE LAST ENDORSER ON AN ACTION BASED ON THE BREACH OF THE ENDORSER'S WARRANTY OF THE GENUINENESS OF ALL PRIOR ENDORSEMENTS. IN THE CASE OF A GOVERNMENT CHECK DRAWN ON THE TREASURER OF THE UNITED STATES THE GOVERNMENT IS BOTH THE DRAWER AND DRAWEE. THEREFORE, UNDER THE RULE JUST STATED, WHERE THE GOVERNMENT HAS PAID A CHECK DRAWN TO THE TREASURER OF THE UNITED STATES UNDER THE USUAL WARRANTY OF ENDORSERS AS TO THE GENUINENESS OF ALL PRIOR ENDORSEMENTS, AND IT THEREAFTER DEVELOPS THAT THE PAYEE'S ENDORSEMENT ON SUCH PAID CHECK WAS FORGED, THE UNITED STATES HAS A RIGHT TO RECOVER BACK THE AMOUNT PAID FROM THE FORGER OR FROM THE LAST ENDORSER, AND HAS THE FURTHER RIGHT TO PROCEED AGAINST EACH CONCURRENTLY.

IT IS ALSO FUNDAMENTAL THAT THE GOVERNMENT HAS THE INHERENT RIGHT TO SET AGAINST AN AMOUNT DUE A CLAIMANT ANY SUM THE SAME PERSON OWES THE GOVERNMENT, EITHER UNDER THE SAME OR OTHER OBLIGATIONS, AND SUCH RIGHT MAY BE EXERCISED NOTWITHSTANDING THE AMOUNT OWING TO THE GOVERNMENT MAY BE OTHERWISE SECURED (2 COMP. GEN. 579). IN OTHER WORDS, THE GOVERNMENT MAY THROUGH PROPER ADMINISTRATIVE OFFICERS FIRST APPLY ALL AVAILABLE ASSETS IN ITS POSSESSION TOWARD LIQUIDATION OF THE INDEBTEDNESS BEFORE RESORTING TO OTHER AVAILABLE REMEDIES (7 COMP. GEN. 305).

IN THE CASES OF THOMAS J. JACKSON, XC-1268004, AND JOHN P. WADDEN, C- 278062, COVERED IN DECISIONS OF THIS OFFICE, 13 COMP. GEN. 309 AND A 47978, DATED MAY 12, 1934, REFERRED TO IN YOUR LETTER, SUPRA, IT WAS APPARENT FROM THE FACTS THEREIN SUBMITTED THAT RECOVERY ON THE FORGED CHECKS WAS FIRST MADE FROM THE ENDORSING BANKS AS INDEMNIFICATION OF THE LOSS SUSTAINED BY THE GOVERNMENT ARISING OUT OF THE BREACH OF THEIR CONTRACTS OF ENDORSEMENT GUARANTEEING THE GENUINENESS OF ALL PRIOR ENDORSEMENTS. SUCH RECOVERY WAS IN ACCORDANCE WITH THE RULE STATED HEREIN. THE RIGHTFUL PAYEES OF THE INVOLVED CHECKS WERE THEREAFTER PAID FROM THE AMOUNTS SO RECOVERED. AFTER SUCH PAYMENT TO THE RIGHTFUL PAYEES, YOUR ADMINISTRATION UNDERTOOK TO WITHHOLD FROM THE BENEFITS PAYABLE TO THE FORGERS (OR THEIR IMMEDIATE BENEFICIARIES) FOR THE PURPOSE OF REIMBURSING THE BANKS WHICH SUSTAINED THE LOSS ON THE INVOLVED CHECKS. SUCH ACTION BY YOUR ADMINISTRATION WAS IN CONTRAVENTION OF THE PROVISIONS OF SECTION 308 (A) OF THE WORLD WAR ADJUSTED COMPENSATION ACT (44 STAT. 827), IN THE JACKSON CASE, AND SECTION 22 OF THE WORLD WAR VETERANS' ACT (43 STAT. 613), IN THE WADDEN CASE. BUT, EVEN ASIDE FROM THESE INHIBITORY STATUTORY PROVISIONS, THERE WOULD BE NO AUTHORITY IN THE GOVERNMENT TO ACT AS A COLLECTION AGENT FOR THE BENEFIT OF THE ENDORSERS SUSTAINING A LOSS THROUGH PROPER RECLAMATION PROCEEDINGS ON FORGED CHECKS. AFTER THE GOVERNMENT'S LOSS HAS BEEN INDEMNIFIED IN SUCH CASES, THE MATTER OF ADJUSTMENT IS A PRIVATE ONE AS BETWEEN THE FORGER AND THE ENDORSER SUFFERING THE LOSS.

IN THE CASE OF JOHN INABINET, COVERED IN 6 COMP. GEN. 513, ALSO REFERRED TO IN YOUR LETTER, SUPRA, IT APPEARS THAT THERE WAS A SO CALLED "CONCURRENT RECOVERY"--- ONE FROM THE ENDORSER AND ALSO ONE FROM THE FORGER--- THE GOVERNMENT, AS PREVIOUSLY STATED HEREIN, HAVING A RIGHT, IN CHECK-FORGERY CASES, TO PROCEED CONCURRENTLY AGAINST THE ENDORSER AND THE FORGER. BY APPLYING THE RULE OF OFFSET AS HEREINBEFORE STATED, IT WAS PROPER FOR THE UNITED STATES THERE TO FIRST APPLY THE AVAILABLE ASSETS IN ITS POSSESSION TOWARD LIQUIDATION OF THE FORGER'S INDEBTEDNESS. SUCH APPLICATION OF THE ASSETS IN THIS CASE RESULTED IN A COMPLETE LIQUIDATION OF THE FORGER'S INDEBTEDNESS TO THE UNITED STATES. CONSEQUENTLY THE AMOUNT RECOVERED FROM THE ENDORSER WAS THUS FOR TREATING AS AN ERRONEOUS COLLECTION BY THE GOVERNMENT AND, AS SUCH, WAS PROPERLY FOR REFUNDING TO THE INNOCENT ENDORSER. SUCH ACTION WAS CLEARLY WITHIN THE PRINCIPLES STATED HEREIN, WHEN VIEWED IN THE LIGHT THAT THE RECOVERY MADE FROM THE FORGER WAS NOT FOR THE PURPOSE OF REIMBURSING THE ENDORSER BUT FOR THE SOLE PURPOSE OF LIQUIDATING THE FORGER'S INDEBTEDNESS TO THE UNITED STATES.

IN THE CASE OF ARCHIE BOYKIN, XC-128189, COVERED IN MY DECISION A 55086, DATED MAY 18, 1934, WHICH IS ALSO REFERRED TO IN YOUR LETTER, NO RECLAMATION OF THE PROCEEDS OF THE FORGED CHECKS HAD BEEN MADE AT THE TIME OF THE DECISION. YOUR ADMINISTRATION REPORTED IN THIS CASE, HOWEVER, THAT THE MONTHLY BENEFITS DUE THE FORGER FROM YOUR ADMINISTRATION WERE BEING WITHHELD TOWARD LIQUIDATION OF THE FORGER'S INDEBTEDNESS TO THE GOVERNMENT. THERE WAS NO DEFINITE ASSURANCE, HOWEVER, THAT THE FORGER WOULD LIVE LONG ENOUGH TO ALLOW COMPLETE LIQUIDATION OF HIS INDEBTEDNESS TO THE GOVERNMENT. WHEN THE GOVERNMENT SUFFERS A LOSS ON A FORGED CHECK, IT IS ENTITLED TO AN IMMEDIATE INDEMNIFICATION THEREOF FROM THE ENDORSERS. THE DEFERRING OF RECLAMATION PROCEEDINGS WITH THE VIEW OF PERMITTING MONTHLY RECOUPMENTS OVER AN INDEFINITE PERIOD IS NOT TO THE BEST INTERESTS OF THE GOVERNMENT, BECAUSE, SHOULD THE MEANS OF RECOVERY BECOME EXHAUSTED BEFORE COMPLETE RECOVERY IS EFFECTED, AS MIGHT BE OCCASIONED BY THE DEATH OF THE BENEFICIARY, OR OTHERWISE, THE GOVERNMENT AT SUCH TIME MAY NOT BE IN A POSITION TO RECLAIM SUCCESSFULLY THE AMOUNT DUE, OWING TO POSSIBLE BANK FAILURE, DEATH OF ENDORSERS, ETC. TAKING THESE FACTORS INTO CONSIDERATION, IT SHOULD BE READILY APPARENT WHY IT IS TO THE INTEREST OF THE GOVERNMENT TO EXERCISE ITS RIGHT IN THIS CASE TO PROCEED AGAINST THE FORGER AND ENDORSERS CONCURRENTLY. SHOULD CONCURRENT RECOVERY BE EFFECTED HERE, AS IN THE JOHN INABINET CASE DISCUSSED ABOVE, IT WILL BE PROPER TO REFUND TO THE ENDORSERS SUCH SUM AS MAY BE IN EXCESS OF THAT REQUIRED FOR THE FULL LIQUIDATION OF THE INDEBTEDNESS TO THE GOVERNMENT--- SUCH EXCESS RECOVERY BEING FOR TREATING AS AN ERRONEOUS RECOVERY AND THUS PROPERLY FOR REFUNDING TO THE ENDORSER OR ENDORSERS INVOLVED, AND IN NOWISE COMING WITHIN THE INHIBITORY PROVISIONS OF SECTION 22 OF THE WORLD WAR VETERANS' ACT, 1924. THERE MUST NOT BE OVERLOOKED IN THIS CASE THE FACT THAT RECLAMATION PROCEEDINGS COULD ONLY BE AUTHORIZED FOR THE CHECKS ISSUED OVER THE PERIOD JULY 1, 1923, TO NOVEMBER 30, 1932--- THE CHECKS COVERING THE PERIOD OCTOBER 15, 1918, TO JULY 1, 1923, HAVING BEEN DESTROYED. SINCE THE WRONGFUL NEGOTIATOR HAS ADMITTED THAT HE APPROPRIATED TO HIS OWN USE ALL OF THE UNDESTROYED CHECKS COVERING THE PERIOD JULY 1, 1923, TO NOVEMBER 30, 1932, IT MAY BE THE SAME PERSON NEGOTIATED, ALSO, THE CHECKS ISSUED PRIOR TO JULY 1, 1923. SHOULD IT BE SO DETERMINED, ANY PRESENT RECOVERY BY THE WITHHOLDING OF MONTHLY BENEFITS WOULD BE FOR APPLICATION TO HIS INDEBTEDNESS IN THE ORDER IN WHICH IT OCCURRED. IN THE EVENT OF ANY CONCURRENT RECOVERY OVER ANY PORTION OF THE PERIOD JULY 1, 1923, TO NOVEMBER 30, 1932, THE RULE HERETOFORE STATED FOR APPLICATION IN SUCH CASES WILL LIKEWISE BE FOR APPLICATION HERE.

IT SHOULD BE NOTED FROM THE FOREGOING THAT THERE IS NO CONFLICT IN THE DECISIONS OF THIS OFFICE REFERRED TO IN YOUR LETTER, AS SEEMS TO BE ASSUMED BY YOU. IT MAY BE STATED IN THIS CONNECTION THAT IN CASES INVOLVING FORGERIES THE PROPER ACTION SHOULD BE TAKEN BY YOUR ADMINISTRATION BOTH IN REPORTING THE CASES FOR RECLAMATION AND IN WITHHOLDING AMOUNTS DUE THE FORGER WHERE THAT IS POSSIBLE. THE AMOUNTS COLLECTED AS A RESULT WILL BE FOR DISPOSITION AS HEREIN INDICATED.

WITH RESPECT TO THE 12 CASES LISTED IN YOUR LETTER, THE ACTION SHOULD BE IN ACCORDANCE WITH THE RULES DISCUSSED HEREIN. WHERE, HOWEVER, SETTLEMENTS HAVE ALREADY BEEN MADE WITH THE ENDORSERS CONTRARY TO THE PRINCIPLES STATED HEREIN, SUCH SETTLEMENTS NEED NOT NOW BE DISTURBED.