A-57207, SEPTEMBER 12, 1934, 14 COMP. GEN. 221

A-57207: Sep 12, 1934

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IS LIABLE AS A GUARANTOR ON AN ORIGINAL UNDERTAKING. THE ENFORCEMENT OF THE LIABILITY ARISING UNDER SUCH ORIGINAL UNDERTAKING IS NOT CONTINGENT OR DEPENDENT UPON THE ABILITY OF THE GUARANTOR TO COLLECT FROM ANY PRIOR PARTY ON THE CHECK. IN RECLAMATION PROCEEDINGS INSTITUTED ON A FORGED CHECK AN ENDORSING BANK MAY NOT DEFEND ON THE GROUND THAT THE GOVERNMENT WAS GUILTY OF LACHES. - IT BEING A WELL-SETTLED PRINCIPLE OF LAW THAT LACHES IS NOT IMPUTABLE TO THE GOVERNMENT IN ITS SOVEREIGN CAPACITY AND THAT THE GOVERNMENT IS NOT LIABLE FOR THE NONFEASANCE. AS FOLLOWS: REFERENCE IS MADE TO YOUR LETTER DATED APRIL 6. OWING TO THEN LENGTH OF TIME ELAPSED BETWEEN THE NEGOTIATION OF THE CHECK AND NOTIFICATION WHICH WAS SENT US.

A-57207, SEPTEMBER 12, 1934, 14 COMP. GEN. 221

CHECKS - FORGED ENDORSEMENTS - LIABILITY OF ENDORSING BANK AN ENDORSING BANK WHICH GUARANTEES ALL PRIOR ENDORSEMENTS ON A CHECK WHERE THE PAYEE'S ENDORSEMENT THEREON HAS BEEN FORGED, IS LIABLE AS A GUARANTOR ON AN ORIGINAL UNDERTAKING, IN ADDITION TO THE LIABILITY ARISING UNDER THE IMPLIED WARRANTIES ATTENDANT UPON A GENERAL ENDORSEMENT, AND THE ENFORCEMENT OF THE LIABILITY ARISING UNDER SUCH ORIGINAL UNDERTAKING IS NOT CONTINGENT OR DEPENDENT UPON THE ABILITY OF THE GUARANTOR TO COLLECT FROM ANY PRIOR PARTY ON THE CHECK. IN RECLAMATION PROCEEDINGS INSTITUTED ON A FORGED CHECK AN ENDORSING BANK MAY NOT DEFEND ON THE GROUND THAT THE GOVERNMENT WAS GUILTY OF LACHES--- IT BEING A WELL-SETTLED PRINCIPLE OF LAW THAT LACHES IS NOT IMPUTABLE TO THE GOVERNMENT IN ITS SOVEREIGN CAPACITY AND THAT THE GOVERNMENT IS NOT LIABLE FOR THE NONFEASANCE, MISFEASANCE, OR NEGLIGENCE OF ITS OFFICERS.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, SEPTEMBER 12, 1934:

CONSIDERATION HAS BEEN GIVEN TO LETTER FROM YOUR DEPARTMENT DATED JULY 23, 1934, AS FOLLOWS:

REFERENCE IS MADE TO YOUR LETTER DATED APRIL 6, 1932 (CU: F-0361642 AVF), TO THE TREASURY OF THE UNITED STATES, RELATING TO CHECK NO. 85,570, DATED MARCH 27, 1931, FOR $345.50, DRAWN ON THE TREASURER OF THE UNITED STATES BY JOHN W. REYNAR, SPECIAL DISBURSING AGENT, VETERANS' ADMINISTRATION, SYMBOL 99-111, TO THE ORDER OF RILEY SELLER, IN WHICH YOU AUTHORIZED RECLAMATION OF THE AMOUNT OF THE CHECK AND THE DELIVERY OF ITS PROCEEDS TO THE PAYEE.

ON APRIL 9, 1932, THE TREASURER REQUESTED REFUND FROM THE ENDORSERS THROUGH THE BALTIMORE BRANCH OF THE FEDERAL RESERVE BANK OF RICHMOND. A LETTER DATED MAY 14, 1932, THE FIRST NATIONAL BANK, BALTIMORE, MARYLAND, THE SECOND ENDORSING BANK, DECLINED TO MAKE REFUND, STATING THAT THE BANKING DEPARTMENT AT RALEIGH, NORTH CAROLINA, HAD INSTRUCTED THE RECEIVER OF THE UNITED BANK AND TRUST COMPANY, GREENSBORO, NORTH CAROLINA, THE CASHING BANK, TO DENY THE CLAIM. ON MAY 23, 1932, THE FIRST NATIONAL BANK, BALTIMORE, MARYLAND, FURTHER STATED:

"WE DENY ANY LIABILITY ON THIS ITEM, OWING TO THEN LENGTH OF TIME ELAPSED BETWEEN THE NEGOTIATION OF THE CHECK AND NOTIFICATION WHICH WAS SENT US. SHOULD WE HAVE BEEN NOTIFIED PROMPTLY, WE COULD HAVE RECOVERED THE AMOUNT. WE, THEREFORE, DECLINE TO AUTHORIZE YOU TO CHARGE OUR ACCOUNT.'

ON JUNE 15, 1932, THE MATTER WAS REFERRED TO THE SOLICITOR OF THE TREASURY FOR THE PURPOSE OF BRINGING SUIT, IF NECESSARY, TO EFFECT RECOVERY, WHO, IN TURN, TRANSFERRED THE MATTER ON AUGUST 14, 1933, TO THE ATTORNEY GENERAL.

IN A LETTER DATED JUNE 6, 1934, ASSISTANT ATTORNEY GENERAL SWEENEY STATES, IN PART,"THE DEPARTMENT IS OF THE OPINION THAT NO RECOVERY MAY BE HAD IN THIS CASE AND IS THEREFORE TREATING THE MATTER AS CLOSED.'

IN VIEW OF THE OPINION OF ASSISTANT ATTORNEY GENERAL SWEENEY, THE CHECK AND THE FILE PERTAINING THERETO ARE RETURNED FOR ADVICE AS TO WHETHER RECLAMATION MAY BE ABANDONED AND THE TREASURER RELIEVED FROM FURTHER LIABILITY.

THE SUBJECT CHECK WAS ISSUED BY THE VETERANS' ADMINISTRATION ON A VALID APPLICATION MADE BY THE VETERAN FOR A LOAN ON THE SECURITY OF HIS ADJUSTED -SERVICE CERTIFICATE AND WHILE SAID CHECK WAS ACTUALLY MAILED TO THE ADDRESS SHOWN IN THE APPLICATION FOR THE LOAN, IT HAS BEEN ESTABLISHED CONCLUSIVELY THAT THE CHECK WAS INTERCEPTED AND NEGOTIATED BY A PERSON, OTHER THAN THE RIGHTFUL PAYEE, BUT WHOSE IDENTITY HAS NOT BEEN ESTABLISHED. THERE WAS THUS NO NEGLIGENCE ON THE PART OF THE GOVERNMENT IN THE ISSUANCE AND MAILING OF THE CHECK.

THE CIRCUMSTANCES UNDER WHICH THE CASHING BANK RECEIVED AND CASHED THE CHECK IN QUESTION ARE STATED IN THE SECRET SERVICE REPORT MADE UNDER DATE OF JANUARY 18, 1932, AS FOLLOWS:

I INVESTIGATED THIS CASE AT GREENSBORO, N.C., ON JANUARY 14, 1932. CALLED AT THE UNITED BANK AND TRUST COMPANY, WHICH BANK IS NOW IN THE HANDS OF RECEIVER, WHERE THIS CHECK WAS CASHED, AND SAW W. E. PHELPS, TELLER NO. 3, WHO STATED HE CASHED THIS CHECK FOR AN OLD NEGRO MAN WHO WAS 50 YEARS OLD OR OVER, * * *. SAID WHEN THE CHECK WAS CASHED HE WROTE THE NOTATION ON THE BACK "405 BENNETT STREET.' SAID * * * NEGRO WOMANWAS WITH HIM, AND THIS MAN TOLD HIM HE WAS THE FATHER OF RILEY SELLERS, AND THAT THE BOY WAS SICK AND WANTED HIM TO CASH THE CHECK, AND SHOWED HIM THE PINK SLIP THAT COMES ALONG WITH THESE LOAN CHECKS. SAID AFTER THIS NEGRO HAD SHOWED HIM THE PINK SLIP HE WENT AHEAD AND CASHED THE CHECK FOR HIM. * *

SUBSEQUENT INVESTIGATION DISCLOSED THAT THE PERSON SO PRESENTING THE CHECK TO THE BANK WAS NOT THE VETERAN'S FATHER AT ALL, BUT AN IMPOSTER- - THE VETERAN'S FATHER HAVING THEN BEEN DEAD FOR ABOUT 5 YEARS. IT THUS APPEARS THAT THE BANK RELIED SOLELY ON THE IMPOSTER'S STATEMENT THAT HE WAS THE PAYEE'S FATHER, ETC.--- SUCH RELIANCE APPARENTLY BEING PREDICATED ON THE MERE POSSESSION OF THE CHECK AND, ALSO, OF THE "PINK SLIP" THAT USUALLY ACCOMPANIES SUCH CHECKS WHEN MAILED BY THE VETERANS' ADMINISTRATION. THE BANK HAVING CASHED THE CHECK WITHOUT THE GENUINE ENDORSEMENT OF THE PAYEE'S NAME, IT BECOMES LIABLE ON THE BREACH OF ITS ENDORSEMENT CONTRACT GUARANTEEING THE GENUINENESS OF ALL PRIOR ENDORSEMENTS. UNITED STATES V. NATIONAL BANK OF COMMERCE, 205 FED.REP. 433. SEE, ALSO, 11 COMP. GEN. 48; ID. 447.

IN VIEW OF THE FOREGOING THERE WOULD APPEAR TO BE NO QUESTION AS TO THE LIABILITY OF THE CASHING BANK I.E., THE FIRST ENDORSING BANK. THE SECOND ENDORSING BANK, VIZ, THE FIRST NATIONAL BANK OF BALTIMORE, DECLINES TO MAKE REFUND ON TWO GROUNDS, NAMELY:

1. THAT THE BANKING DEPARTMENT AT RALEIGH, N.C., HAS INSTRUCTED THE RECEIVER OF THE UNITED BANK AND TRUST CO., GREENSBORO, N.C., THE CASHING BANK, TO DENY THE CLAIM ON THE CHECK.

2. THAT THE GOVERNMENT WAS CHARGEABLE WITH LACHES IN THE PROSECUTION OF ITS CLAIM ON THE CHECK.

WITH RESPECT TO THE FIRST CONTENTION IT IS PERTINENT TO NOTE THAT THE BALTIMORE BANK IN ADDITION TO BECOMING BOUND UNDER THE IMPLIED WARRANTIES ATTENDANT UPON A GENERAL ENDORSEMENT, UNDER THE WELL KNOWN PRINCIPLES OF THE NEGOTIABLE INSTRUMENTS LAW, IT ASSUMED A FURTHER LIABILITY ON AN ORIGINAL UNDERTAKING BY GUARANTEEING THE GENUINENESS OF ALL PRIOR ENDORSEMENTS. IT IS FUNDAMENTAL IN THAT CONNECTION THAT WHEN THE OBJECT OF THE GUARANTY "FALLS" OR FAILS THERE IS A BREACH OF THE CONTRACT SOUNDING IN DAMAGES FOR WHICH THE GUARANTOR MUST RESPOND. SUCH LIABILITY IS ORIGINAL--- ITS ENFORCEMENT NOT BEING CONTINGENT OR DEPENDENT UPON THE ABILITY OF THE GUARANTOR TO COLLECT THE DAMAGES FROM ANY PRIOR PARTY ON THE COLLATERAL CONTRACT UPON WHICH THE ORIGINAL UNDERTAKING IS BASED. IS EVIDENT, THEREFORE, THAT THERE ARE NO LEGAL GROUNDS TO SUPPORT THE DEFENSE ASSERTED IN THE FIRST CONTENTION.

IN RESPECT OF THE SECOND CONTENTION THE RECORD SHOWS THAT THE PAYEE DID NOT REPORT THE NONRECEIPT OF THE CHECK ISSUED MARCH 27, 1931, UNTIL AUGUST 15, 1931; THAT IMMEDIATELY UPON RECEIPT OF SUCH NOTICE, THE MATTER WAS REFERRED TO THE SECRET SERVICE DIVISION OF THE TREASURY DEPARTMENT FOR INVESTIGATION AND REPORT; THAT AFTER RECEIPT OF THE REPORT AND CONSIDERATION OF THE MATTER THEREIN CONTAINED, THE TREASURER OF THE UNITED STATES WAS AUTHORIZED BY LETTER OF THIS OFFICE, DATED APRIL 6, 1932, TO RECLAIM THE AMOUNT OF THE CHECK; AND THAT BASED ON THIS AUTHORIZATION, THE TREASURER INSTITUTED RECLAMATION PROCEEDINGS ON APRIL 9, 1932.

HAVING IN VIEW THE THOROUGHNESS WITH WHICH THE UNITED STATES MUST CONSIDER MATTERS RELATING TO FORGED ENDORSEMENTS ON CHECKS BEFORE DEFINITE LIABILITY MAY BE ESTABLISHED AND ACTION TAKEN, IT IS READILY APPARENT THAT THERE IS NO BASIS FOR CHARGING THE GOVERNMENT WITH LACHES. FURTHERMORE, IT IS A WELL SETTLED PRINCIPLE OF LAW THAT LACHES MAY NOT BE IMPUTED TO THE GOVERNMENT IN ITS CHARACTER AS SOVEREIGN AND THAT THE GOVERNMENT IS NOT LIABLE FOR THE NONFEASANCE, MISFEASANCE, OR NEGLIGENCE OF ITS OFFICERS. COOKE V. UNITED STATES, 91 U.S. 389 (398); GERMAN BANK V. UNITED STATES, 148 U.S. 573 (579), AND CASES THEREIN CITED.

THE LIABILITIES OF BOTH THE FIRST AND SECOND ENDORSING BANKS BEING CLEARLY ESTABLISHED BY THE FOREGOING, THE STATEMENT BY THE DEPARTMENT OF JUSTICE THAT NO RECOVERY MAY BE HAD IN THIS CASE IS NOT UNDERSTOOD. HOWEVER, WHATEVER MAY BE THE BASIS FOR THE OPINION OF THAT DEPARTMENT IT MAY BE STATED IN SPECIFIC ANSWER TO YOUR INQUIRY THAT UNDER THE FACTS AS PRESENTED BY THE RECORD THERE IS NO AUTHORITY OF LAW TO ABANDON RECLAMATION PROCEEDINGS ON THIS CHECK OR TO ALLOW CREDIT IN THE ACCOUNTS OF THE TREASURER OF THE UNITED STATES FOR THE AMOUNT OF THE SAME.