A-59967, SEPTEMBER 18, 1935, 15 COMP. GEN. 218

A-59967: Sep 18, 1935

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MAY NOT BE DENIED ON THE BASIS THAT THE INDORSER WAS NOT THE CASHING BANK. WAS THE CORRESPONDENT BANK OF THE CASHING BANK AND. NEITHER IS SAID LIABILITY AFFECTED BY THE INDORSER'S INABILITY TO COLLECT FROM A PRIOR INDORSER. NOR IS IT CONDITIONED UPON DEMAND OR THE GIVING OF NOTICE OF THE DISCOVERY OF FACTS WHICH. WERE PRESUMABLY WITHIN THE KNOWLEDGE OF THE INDORSER. AS FOLLOWS: REFERENCE IS MADE TO THE FOLLOWING CHECKS IN FAVOR OF WILLIAM R. THIS OFFICE WAS AUTHORIZED TO PRESS RECLAMATION ON THE THREE CHECKS DESCRIBED AND SIXTEEN OTHERS. THE CHECKS DESCRIBED AND FILE PERTAINING THERETO ARE REFORWARDED TO YOU FOR FURTHER CONSIDERATION. ADVICE IS REQUESTED AS TO WHETHER THE CITATIONS SUBMITTED BY THE ENDORSING BANK WILL ALTER YOUR DECISION RELATING TO RECLAMATION OF THE AMOUNTS OF THESE THREE CHECKS.

A-59967, SEPTEMBER 18, 1935, 15 COMP. GEN. 218

CHECKS - FORGED INDORSEMENTS - RECLAMATION PROCEEDINGS THE LIABILITY OF A BANK APPEARING AS INDORSER ON A GOVERNMENT CHECK CASHED UPON A FORGED INDORSEMENT, MAY NOT BE DENIED ON THE BASIS THAT THE INDORSER WAS NOT THE CASHING BANK, BUT WAS THE CORRESPONDENT BANK OF THE CASHING BANK AND, THEREFORE, HAD NO PART IN THE IDENTIFICATION OF THE PAYEE; NEITHER IS SAID LIABILITY AFFECTED BY THE INDORSER'S INABILITY TO COLLECT FROM A PRIOR INDORSER, NOR IS IT CONDITIONED UPON DEMAND OR THE GIVING OF NOTICE OF THE DISCOVERY OF FACTS WHICH, BY THE OPERATION OF THE LEGAL WARRANTY OF GENUINENESS, WERE PRESUMABLY WITHIN THE KNOWLEDGE OF THE INDORSER.

COMPTROLLER GENERAL MCCARL TO THE TREASURER OF THE UNITED STATES, SEPTEMBER 18, 1935:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER OF JUNE 4, 1935, AWS-C, AS FOLLOWS:

REFERENCE IS MADE TO THE FOLLOWING CHECKS IN FAVOR OF WILLIAM R. H. KREGER:

CHART NUMBER DATE AMOUNT DRAWER SYMBOL DATE

PAID 100,632 3- 5-29$959.03 A. L. HARDY 11-422 3-15-29 100,654 3-19-29 639.36 A. L. HARDY

11-422 4- 5-29 115,889 10-31-29 50.00 A. L. HARDY 11-422 11- 9-29

IN YOUR DECISION A-59967, DATED FEBRUARY 27, 1935, THIS OFFICE WAS AUTHORIZED TO PRESS RECLAMATION ON THE THREE CHECKS DESCRIBED AND SIXTEEN OTHERS. IN VIEW OF ADDITIONAL ARGUMENTS OFFERED BY THE FIRST NATIONAL BANK OF ST. PAUL, MINNESOTA, AN ENDORSER, IN ITS LETTER DATED MARCH 20 TO THE FEDERAL RESERVE BANK OF MINNEAPOLIS, THE CHECKS DESCRIBED AND FILE PERTAINING THERETO ARE REFORWARDED TO YOU FOR FURTHER CONSIDERATION, AND ADVICE IS REQUESTED AS TO WHETHER THE CITATIONS SUBMITTED BY THE ENDORSING BANK WILL ALTER YOUR DECISION RELATING TO RECLAMATION OF THE AMOUNTS OF THESE THREE CHECKS.

THE DECISION OF THIS OFFICE, A-59967, DATED FEBRUARY 27, 1935, RENDERED IN THE INSTANT CASE HELD THAT:

WHILE THE INVOLVED CHECKS WERE FORWARDED TO THE WRONG ADDRESS BECAUSE OF THE CONFUSION OF RECORDS IN THE ADMINISTRATIVE OFFICE THAT FACT ALONE DOES NOT NECESSARILY RELIEVE THE CASHING INDORSERS OF THEIR DUTY AND RESPONSIBILITY FOR PROPERLY IDENTIFYING THE PERSON PRESENTING THE CHECKS FOR CASHING. WHILE, ALSO, IT IS ALLEGED THAT THE PERSON PRESENTING THE CHECK FOR PAYMENT WAS KNOWN AS WILLIAM H. KREGER, THE FACT REMAINS THAT THE PAYEE'S NAME WAS DESCRIBED AS WILLIAM R. H. KREGER. SUCH DISCREPANCY OR DIFFERENCE IN THE NAME, TOGETHER WITH THE FACT THAT WILLIAM H. KREGER COULD NOT HAVE IDENTIFIED HIMSELF AS THE KREGER TO WHOM HAD BEEN ASSIGNED THE "C" NUMBER SHOWN ON THE CHECKS SHOULD HAVE BEEN SUFFICIENT TO HAVE PUT THE INDORSERS ON INQUIRY AS TO WHETHER SUCH PERSON HAD TITLE TO THE CHECKS. IN THE CIRCUMSTANCES APPEARING, IT HAS NOT BEEN ESTABLISHED THAT THE CASHING INDORSERS EXERCISED THE DEGREE OF CARE REQUIRED BY LAW TO PROPERLY IDENTIFY THE PERSON PRESENTING THE CHECKS FOR PAYMENT SO AS TO RELIEVE THEMSELVES OF THE LIABILITY ARISING IN CONNECTION WITH THE INDORSEMENTS ON THE CHECKS GUARANTEEING OR WARRANTING THE GENUINENESS OF ALL PRIOR INDORSEMENTS. CONVERSELY STATED, THE PROXIMATE CAUSE OF THE LOSS SUSTAINED HERE WAS APPARENTLY THE INDORSERS' FAILURE TO PROPERLY IDENTIFY THE PERSON PRESENTING THE CHECKS FOR CASHING--- THE GOVERNMENT'S PART IN THE MATTER CONSTITUTING MERELY THE REMOTE CAUSE AS DISTINGUISHED FROM THE PROXIMATE CAUSE OF THE LOSS.

THE CONTENTIONS RAISED BY THE SECOND INDORSING BANK, THE FIRST NATIONAL BANK OF ST. PAUL, INN., ARE STATED IN ITS LETTER DATED MARCH 20, 1935, TO THE FEDERAL RESERVE BANK OF MINNEAPOLIS, AS FOLLOWS:

FROM A READING OF THE QUOTED PORTION OF THE COMPTROLLER'S OPINION, IT SEEMS CLEAR THAT HE HAS IGNORED THE FACT THAT THIS BANK WAS NOT THE CASHING ENDORSER, UPON WHOM THE LAW PLACES THE RESPONSIBILITY OF IDENTIFICATION OF THE PERSON PRESENTING THE INSTRUMENT FOR PAYMENT. SUCH ENDORSER WAS THE FIRST NATIONAL BANK OF GOODWIN, SOUTH DAKOTA, NOW CLOSED. THIS BANK WAS MERELY THE TWIN CITY CORRESPONDENT BANK OF THE FIRST NATIONAL BANK OF GOODWIN, AND HENCE TOOK THE INSTRUMENT SOLELY IN RELIANCE UPON THE "ALL PRIOR ENDORSEMENTS GUARANTEED" ENDORSEMENT OF THE FIRST NATIONAL OF GOODWIN, AND UPON WHICH ENDORSEMENT THIS BANK COULD HAVE REALIZED HAD THE FACT OF THE FORGERY OF THE ENDORSEMENT BEEN BROUGHT TO OUR ATTENTION BEFORE THE CLOSING OF THE BANK AT GOODWIN. ON OR ABOUT NOVEMBER 22, 1930, WILLIAM R. H. KREGER MADE AN AFFIDAVIT SETTING UP THE FORGERY, AND THIS BANK SHOULD HAVE BEEN NOTIFIED OF THAT FACT FORTHWITH BY THE FEDERAL OFFICERS OR EMPLOYES HAVING THE MATTER IN CHARGE, SO THAT IT COULD TAKE PROPER STEPS TO PROTECT ITSELF ON THE ENDORSEMENT OF THE INSTRUMENT. AS WE UNDERSTAND THE FACTS, THE MATTER AT THAT TIME WAS IN THE OFFICE OF THE COMPTROLLER, WHO APPARENTLY DID NOT SEE FIT TO SO ADVISE US AND HENCE WHAT IS SAID IN ENGLAND NATL. BANK VS. UNITED STATES, 282 FED. 121, WOULD APPEAR APPLICABLE:

"IT IS THE DUTY OF A BANK, UPON THE REQUEST OF A DEPOSITOR THEREOF, TO FURNISH HIM WITH A STATEMENT OF THE ACCOUNT, AND TO ACCOMPANY THAT STATEMENT WITH THE CHECKS IT HAS PAID AS VOUCHERS FOR SUCH PAYMENT. IT IS THE DUTY OF A DEPOSITOR, WHO RECEIVES SUCH A STATEMENT AND SUCH PAID CHECKS, WITHIN A REASONABLE TIME TO EXAMINE THEM, TO ASCERTAIN WHETHER OR NOT THE AMOUNT IS CORRECT, AND WHETHER OR NOT THE PAID CHECKS ARE JUST AND LEGAL VOUCHERS FOR THE AMOUNTS CHARGED ON THE ACCOUNT OF THEM, AND,IMMEDIATELY UPON THE DISCOVERY OF ANY ERROR IN THE ACCOUNT, OR ANY FRAUDULENT, ALTERED, OR DEFECTIVE PAID CHECK OR VOUCHER, TO NOTIFY THE BANK THEREOF IN ORDER THAT IT MAY AT ONCE PROCEED TO PROTECT ITSELF BEFORE OTHERS EXHAUST THE PROPERTY OF THE WRONGDOER WHO CAUSED THE LOSS; AND THE NEGLIGENCE OR FAILURE OF THE DEPOSITOR TO MAKE THE EXAMINATION WITHIN A REASONABLE TIME, OR SPEEDILY TO NOTIFY THE BANK AFTER HIS DISCOVERY OF AN ALTERED, DEFECTIVE, OR FRAUDULENT CHECK OR VOUCHER, IS IN LAW A CONCLUSIVE ADMISSION OF THE CORRECTNESS OF THE ACCOUNT AND THE LEGALITY AND JUSTICE OF THE VOUCHER UPON WHICH THE BANK HAS THE RIGHT TO RELY AND WHICH THE DEPOSITOR MAY NOT CONSEQUENTLY DENY. * * * IF THE SUGGESTION PRESENTS ITSELF THAT THE LACHES OR NEGLIGENCE OF THE OFFICERS OR AGENTS OF THE UNITED STATES IN THIS MATTER ARE NOT IMPUTABLE TO IT, THE ANSWER IS THAT, WHILE THIS RULE MAY PREVAIL IN CASES IN WHICH AN AGENT IS PROTECTING OR ENFORCING ITS RIGHTS AS A SOVEREIGN,"STILL," AS CHIEF JUSTICE WHITE SAID IN COOKE V. UNITED STATES, 91 U.S. 389, 398:"A GOVERNMENT MAY SUFFER LOSS THROUGH THE NEGLIGENCE OF ITS OFFICERS. IF IT COMES DOWN FROM ITS POSITION OF SOVEREIGNTY, AND ENTERS THE DOMAIN OF COMMERCE, IT SUBMITS ITSELF TO THE SAME LAWS THAT GOVERN INDIVIDUALS THERE. THUS, IF IT BECOMES THE HOLDER OF A BILL OF EXCHANGE, IT MUST USE THE SAME DILIGENCE TO CHARGE THE DRAWERS AND ENDORSERS THAT IS REQUIRED OF INDIVIDUALS, AND IF IT FAILS IN THIS, ITS CLAIM UPON THE PARTIES IS LOST. * * * GENERALLY, IN RESPECT TO ALL THE COMMERCIAL BUSINESS OF THE GOVERNMENT, IF AN OFFICER SPECIALLY CHARGED WITH THE PERFORMANCE OF ANY DUTY, AND AUTHORIZED TO REPRESENT THE GOVERNMENT IN THAT BEHALF, NEGLECTS THAT DUTY AND LOSS ENSUES, THE GOVERNMENT MUST BEAR THE CONSEQUENCES OF HIS NEGLECT.' SEE ALSO UNITED STATES OF AMERICA V. GUARANTY TRUST CO. OF NEW YORK, 79 LAW ED. 199.'

WILL YOU PLEASE TAKE THIS MATTER UP WITH THE COMPTROLLER GENERAL IN THE LIGHT OF THIS LETTER AND ADVISE.

THE DECISION REFERRED TO IN THE LETTER JUST QUOTED INVOLVED THE FOLLOWING FACTS, QUOTING FROM THE SECOND PARAGRAPH OF THE DECISION BEGINNING AT PAGE 122:

THE TWO CHECKS, 24 AND 25, WERE DATED, SIGNED BY COL. RYTHER, AND DELIVERED TO ROBERT H. HALL, THE FIRST LIEUTENANT OF THE 348TH INFANTRY, ON JANUARY 8, 1918, TO DELIVER TO THE PAYEES NAMED THEREIN IN SATISFACTION OF THEIR CLAIMS FOR SUPPLIES WHICH THE PLAINTIFF HAD PURCHASED FROM THEM. CHECK 24 WAS FOR $3,557.15, AND WAS PAYABLE TO THE ORDER OF "SCOTT-MAYER COM. CO.' CHECK 25 WAS FOR $2,648.34, AND WAS PAYABLE TO THE ORDER OF SWIFT AND CO. THE NUMBERS, DATES, AMOUNTS, AND THE NAMES OF THE PAYEES IN THESE CHECKS APPEARED IN THE STUBS THEREOF, WHICH HAVE BEEN IN A CHECK BOOK IN THE POSSESSION OF THE PLAINTIFF EVER SINCE THE CHECKS WERE DRAWN. LIEUT. HALL HAD CHARGE OF THE MESS FUND AND OF TWO OTHER MESS FUNDS, PURCHASED THE SUPPLIES, KEPT THE ACCOUNT, DREW THE CHECKS, BUT HE HAD NO AUTHORITY TO SIGN THE CHECKS ON THE MESS FUND OF THE 348TH INF. DEPOSIT IN THE BANK. HE HAD, HOWEVER, SIGNATORY POWERS OVER TWO OTHER FUNDS DEPOSITED THEREIN, THAT OF THE "MESS OFFICER, 348TH INF., " AND THAT OF THE "HEADQUARTERS MESS, 348TH INF.' WITH ERASING FLUID HE REMOVED THE NAME OF THE PAYEE IN EACH OF THE TWO CHECKS, WROTE IN THE PLACE OF ,SCOTT- MAYER COM. CO.' IN CHECK 24 "HEADQUARTERS MESS. 348TH INF., " THEN INDORSED THAT NAME ON THE BACK OF THE CHECK; WROTE IN THE PLACE OF SWIFT AND CO. IN CHECK 25 "MESS OFFICER, 348TH INF., " THEN INDORSED THAT NAME ON THE BACK OF THAT CHECK, OBTAINED THE MONEY ON THE CHECKS BY DEPOSITING THEM IN ACCOUNTS IN OTHER BANKS THAN THE PLAINTIFF-S, WHENCE HE COULD DRAW IT OUT, SECURED THE MONEY ON THE CHECKS, AND ABSCONDED. HE HAD WRITTEN THE TWO CHECKS ORIGINALLY AND COL. RYTHER HAD SIMPLY SIGNED THEM, SO THAT THE HANDWRITING OF THE SUBSTITUTED NAMES OF THE PAYEES WAS THE SAME AS THAT OF THE WRITTEN AMOUNTS THEREIN, AND THEY PASSED THROUGH THE BANKS AND WERE PAID BY THE PLAINTIFF WITHOUT EXCITING ANY SUSPICION THAT THERE HAD BEEN ANY CHANGE IN THEM AFTER THEY WERE SIGNED BY COL. RYTHER. * * *

OBVIOUSLY THE DECISION RELIED UPON BY THE BANK AS SUPPORTING ITS CONTENTION COVERS FACTS AND CIRCUMSTANCES ENTIRELY DISSIMILAR TO THOSE INVOLVED HERE; HENCE, WHAT WAS HELD IN THAT DECISION IS NOT CONTROLLING HERE.

IN ITS LETTER REQUESTING FURTHER CONSIDERATION OF THE MATTER, THE FIRST NATIONAL BANK OF ST. PAUL DENIES LIABILITY PRIMARILY ON THE GROUND THAT IT WAS NOT THE CASHING BANK AND, THEREFORE, IT HAD NO PART IN THE IDENTIFICATION OF THE PAYEE, BUT ON THE CONTRARY, IT HAD TO RELY UPON THE INDORSEMENT OF THE CASHING BANK WHICH GUARANTEED THE GENUINENESS OF ALL PRIOR INDORSEMENTS. WHILE THE FIRST NATIONAL BANK OF ST. PAUL DID NOT, IN ITS INDORSEMENT OF THE CHECK, SPECIFICALLY GUARANTEE THE GENUINENESS OF ALL PRIOR INDORSEMENTS, NEVERTHELESS IT IS FUNDAMENTAL IN THE LAW OF NEGOTIABLE INSTRUMENTS THAT A GENERAL INDORSER WARRANTS, AMONG OTHER THINGS, THE GENUINENESS OF ALL PRIOR INDORSEMENTS AND THAT HE HAS A GOOD TITLE TO THE INSTRUMENT. SINCE THE PAYEE'S NAME HERE WAS FORGED IT FOLLOWS THAT THE SAID BANK COULD NOT HAVE HAD A GOOD TITLE TO THE CHECK. HENCE, THE BANK IS LIABLE FOR THE BREACH OF ITS WARRANTY THAT THE PRIOR INDORSEMENTS WERE GENUINE AND THAT IT HAD GOOD TITLE TO THE CHECK--- THE GOVERNMENT'S LOSS HAVING ARISEN FROM PAYMENT OF THE CHECK BY THE TREASURER OF THE UNITED STATES ON THE BASIS OF THE INDORSING BANKS' GUARANTY OR WARRANTY. (CF. FARMERS' STATE BANK IN MERKEL VS. UNITED STATES, 62 FED./2ND) 178; UNITED STATES VS. KINGS COUNTY TRUST CO., 8 FED. SUPP.72; AND UNITED STATES VS. NATIONAL EXCHANGE BANK, 214 U.S. 302.) SUCH LIABILITY IS INDEPENDENT AND IS IN NOWISE AFFECTED BY ANY INDORSER'S INABILITY TO COLLECT FROM A PRIOR INDORSER.

IT IS CONTENDED, ALSO, BY THE SECOND INDORSING BANK THAT THE GOVERNMENT WAS NEGLIGENT IN THE MATTER BY NOT PROMPTLY REPORTING THE FACT OF FORGERY. HAVING IN VIEW THE THOROUGHNESS WITH WHICH THE UNITED STATES MUST CONSIDER MATTERS RELATING TO FORGED INDORSEMENTS ON CHECKS BEFORE DEFINITE LIABILITY MAY BE ESTABLISHED AND ACTION TAKEN, IT MUST BE READILY APPARENT THAT THERE IS NO SOUND BASIS FOR CHARGING THE GOVERNMENT WITH LACHES.

WITH FURTHER REFERENCE TO THE LIABILITY ARISING ON A BANK'S INDORSEMENT, SUCH AS HERE, AND THE EFFECT OF THE FAILURE TO GIVE DUE NOTICE, ETC., THERE IS FOR NOTING WHAT THE SUPREME COURT OF THE UNITED STATES SAID IN THE CASE UNITED STATES V. NATIONAL EXCHANGE BANK, 214 U.S. 302, QUOTING FROM PAGE 320:

UNDER THESE CONDITIONS THE WARRANTY OF GENUINENESS IMPLIED BY THE PRESENTATION AND COLLECTION OF THE CHECKS BEARING THE FORGED INDORSEMENT HAVING BEEN BROKEN AT THE TIME THE CHECKS WERE CASHED BY THE UNITED STATES, AND THE CAUSE OF ACTION HAVING THEREFORE THEN ACCRUED, THE RIGHT TO SUE TO RECOVER BACK FROM THE EXCHANGE BANK WAS NOT CONDITIONED UPON EITHER DEMAND OR THE GIVING OF NOTICE OF THE DISCOVERY OF FACTS WHICH BY THE OPERATION OF THE LEGAL WARRANTY WERE PRESUMABLY WITHIN THE KNOWLEDGE OF THE DEFENDANT.

SEE GENERALLY ALSO 14 COMP. GEN. 221.

SPECIFICALLY, THEREFORE, YOU ARE ADVISED THAT ON THE PRESENT RECORD THERE IS NO AUTHORITY TO ABANDON RECLAMATION PROCEEDINGS ON THE CHECKS IN QUESTION. THE RECLAMATION FILE IS RETURNED FOR YOUR FURTHER ACTION IN THE PREMISES.