A-98068, MAY 25, 1939, 18 COMP. GEN. 880

A-98068: May 25, 1939

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THE INTERESTS OF THE UNITED STATES REQUIRE THAT RECLAMATION PROCEEDINGS BE INSTITUTED UPON DISCOVERY OF THE FRAUD IRRESPECTIVE OF WHETHER THERE WAS ANY NEGLIGENCE ON THE PART OF THE ORIGINAL HOLDER FOR VALUE IN ASCERTAINING THE IDENTITY OF THE PERSON FOR WHOM HE CASHED THE INSTRUMENT. IS AS FOLLOWS: REFERENCE IS MADE TO YOUR LETTER. THE ENDORSERS ARE STILL OF THE OPINION THAT. BECAUSE THE CHECKS WERE DELIVERED BY THE GOVERNMENT TO AN IMPOSTOR. THEY ARE NOT LIABLE. THIS DEPARTMENT IS DESIROUS OF THOROUGHLY UNDERSTANDING YOUR THEORY WITH RESPECT TO THE IMPOSTOR RULE. YOU STATED: "THIS OFFICE HAS HELD THAT IN CASES WHERE AN IMPOSTOR APPLIES FOR A LOAN AND THE PARTICULAR GOVERNMENT AGENCY CONCERNED IS DECEIVED.

A-98068, MAY 25, 1939, 18 COMP. GEN. 880

CHECKS - IMPOSTOR OBTAINED AND NEGOTIATED - RECLAMATION PROCEDURE IN ANY CASE WHERE AN IMPOSTOR NEGOTIATES A CHECK OBTAINED EITHER IN PERSON OR BY MAIL, FROM THE GOVERNMENT, THE INTERESTS OF THE UNITED STATES REQUIRE THAT RECLAMATION PROCEEDINGS BE INSTITUTED UPON DISCOVERY OF THE FRAUD IRRESPECTIVE OF WHETHER THERE WAS ANY NEGLIGENCE ON THE PART OF THE ORIGINAL HOLDER FOR VALUE IN ASCERTAINING THE IDENTITY OF THE PERSON FOR WHOM HE CASHED THE INSTRUMENT, AND THAT, IF NECESSARY TO EFFECT RECOVERY, SUCH CASES BE PROSECUTED TO FINAL JUDICIAL DETERMINATION. PRIOR DECISIONS IN CONFLICT HEREWITH NOT TO BE FOLLOWED HEREAFTER.

COMPTROLLER GENERAL BROWN TO THE SECRETARY OF THE TREASURY, MAY 25, 1939:

YOUR LETTER OF FEBRUARY 21, 1939, IS AS FOLLOWS:

REFERENCE IS MADE TO YOUR LETTER, ADDRESSED TO THE TREASURER OF THE UNITED STATES AND DATED OCTOBER 18, 1938, IN WHICH YOU TOOK THE POSITION THAT RECLAMATION PROCEEDINGS SHOULD NOT BE ABANDONED WITH RESPECT TO THE FOLLOWING CHECKS:

TABLE CHECK NO. DATE AMOUNT PAYEE DISBURSING SYMBOL

OFFICER 65605 5/23/35 $145.70 EVERETT NOLAN ----- C. C. ELLIS -- 92-722

2275 4/23/36 121.50 RALPH WREN -------- C. C. ELLIS -- 92 781

ACCORDINGLY, THE TREASURER'S OFFICE, ON NOVEMBER 3, 1938, AGAIN REQUESTED REFUND THROUGH THE FEDERAL RESERVE BANK OF ST. LOUIS, MISSOURI. NOVEMBER 19, 1938, THAT BANK ADVISED THE TREASURER'S OFFICE THAT THE ENDORSERS REFUSED TO MAKE REFUND. APPARENTLY, THE ENDORSERS ARE STILL OF THE OPINION THAT, BECAUSE THE CHECKS WERE DELIVERED BY THE GOVERNMENT TO AN IMPOSTOR, THEY ARE NOT LIABLE. UNDER THOSE CIRCUMSTANCES, THERE REMAINED NOTHING FOR THIS DEPARTMENT TO DO BUT TO REFER THE CASE TO THE DEPARTMENT OF JUSTICE FOR PROPER ACTION.

HOWEVER, SO THAT THIS DEPARTMENT MAY BE IN A BETTER POSITION TO DEAL WITH INDORSERS WHO RAISE THE IMPOSTOR DEFENSE IN SIMILAR CASES ARISING IN THE FUTURE, THIS DEPARTMENT IS DESIROUS OF THOROUGHLY UNDERSTANDING YOUR THEORY WITH RESPECT TO THE IMPOSTOR RULE.

IN YOUR LETTER OF OCTOBER 18, 1938, YOU STATED:

"THIS OFFICE HAS HELD THAT IN CASES WHERE AN IMPOSTOR APPLIES FOR A LOAN AND THE PARTICULAR GOVERNMENT AGENCY CONCERNED IS DECEIVED, AND ISSUES A CHECK TO THE IMPOSTOR'S ORDER, THE PRINCIPLE AS STATED IN LAND TITLE AND TRUST COMPANY V. NORTHWESTERN NATIONAL BANK, 50 L.R.A. 75, TO THE EFFECT THAT THE MAKER OF A CHECK IS RESPONSIBLE FOR ANY LOSS WHEN HE DREW THE CHECK AND DEALT DIRECTLY WITH THE PARTICULAR PERSON UNDER THE NAME USED IS APPLICABLE AND RECLAMATION OF THE AMOUNT INVOLVED IS NOT AUTHORIZED. PHILIP V. WALTERS CASE, 9 COMP. GEN. 477. HOWEVER, THIS OFFICE HAS ALSO HELD THAT TO COME WITHIN THE RULE OF THE WALTERS CASE IT MUST APPEAR THAT THE IMPOSTOR NOT ONLY DECEIVED THE DRAWER OF THE CHECK AS TO HIS IDENTITY BUT, ALSO, THAT HE CONTINUED TO IMPERSONATE THE RIGHTFUL PAYEE TO SUCH AN EXTENT THAT THE INDORSER BY WHOM THE CHECK WAS CASHED FOR THE IMPOSTOR AFTER EXERCISING DUE CARE AND DILIGENCE TO ASCERTAIN THE IDENTITY OF THE IMPOSTOR HAD REASON TO BELIEVE THAT HE WAS THE RIGHTFUL PAYEE. 11 COMP. GEN. 447.'

IN THE DECISION IN (1930) 9 COMP. GEN. 476, CITED IN THE QUOTATION, RELIANCE WAS HAD UPON THE LAND TITLE AND TRUST COMPANY V. NORTHWESTERN NATIONAL BANK, (1900), 196 PA.ST. 230, AND THE EMPORIA NATIONAL BANK V. S. L. SHOTWELL (1896) 35 KANS. 360. THE FORMER CASE HAS BEEN CITED IN NUMEROUS DECISIONS OF THE COMPTROLLER GENERAL ON THE IMPOSTOR RULE. SEE DECISIONS OF JANUARY 30, 1929 (A-25029), AUGUST 8, 1929 (A-28160), JANUARY 16, 1930 (A-29959); SEE ALSO 1938, 17 COMP. GEN. 604. AN EXAMINATION OF THE LAND TITLE AND TRUST COMPANY CASE REVEALS THAT THE TITLE COMPANY DREW A CHECK PAYABLE TO HERMAN S. BISSEY AND DELIVERED IT TO ASHLEY BELIEVING THAT ASHLEY WAS BISSEY. THE CHECK WAS THEN DEPOSITED IN THE NORTHWESTERN NATIONAL BANK BY ROGERS, WHO HAD OPENED AN ACCOUNT WITH THAT BANK. THE CHECK WHEN DEPOSITED, CARRIED THE PURPORTED ENDORSEMENT OF BISSEY AND ALSO THE ENDORSEMENT OF ROGERS. THE COURT SAID (AT PAGE 233):

"* * * WHETHER ASHLEY AND ROGERS WERE THE SAME PERSON, OR DIFFERENT PERSONS, WHO HAD CONSPIRED TO DEFRAUD THE TRUST COMPANY, AND HAD OPENED AN ACCOUNT WITH THE BANK AS A MEANS TO THAT END, OR WHETHER ROGERS WAS A PERSON WHO WAS INNOCENT IN THE MATTER, DID NOT APPEAR AT THE TRIAL.'

IF ROGERS AND ASHLEY WERE THE SAME PERSON, IT IS, OF COURSE, OBVIOUS THAT ASHLEY DID NOT CONTINUE HIS IMPERSONATION OF BISSEY. (IN THAT CONNECTION, YOUR ATTENTION IS DIRECTED TO NORTH PHILADELPHIA TRUST CO. V. KENSINGTON NAT. BANK (PA. 1938), 196 ATL. 14, WHERE THE COURT RELIED HEAVILY ON THE LAND TITLE CASE.) THE COURT, HOWEVER, SEEMED TO TAKE THE POSITION THAT WHETHER ASHLEY AND ROGERS WERE ONE WAS IMMATERIAL AND THAT WHETHER THE BANK WAS NEGLIGENT IN DEALING WITH ROGERS WAS ALSO IMMATERIAL. THE COURT SAID (AT PAGES 237-38):

"NOR IS THE SOLUTION OF THE QUESTION INVOLVED TO BE SOUGHT IN DETERMINING WHETHER THE BANK WAS NEGLIGENT IN DEALING WITH ITS DEPOSITOR ROGERS. THIS WAS SUGGESTED AT THE ARGUMENT, BUT MAINLY AS A MAKE-WEIGHT; THE CASE WAS NOT PRESENTED OR ARGUED ON THAT GROUND, AND IN VIEW OF THE PRINCIPLES BY WHICH THE QUESTION OF LIABILITY MUST BE DETERMINED AND OF THE FACTS AS SHOWN AT THE TRIAL, IT COULD NOT HAVE BEEN. THE TRUE GROUND OF LIABILITY, IF ANY EXISTED, WAS THAT THE BANK COLLECTED OF THE TRUST COMPANY A CHECK DRAWN TO THE ORDER ON WHICH THE INDORSEMENT WAS FORGED. BETWEEN THE BANK AND THE TRUST COMPANY, AS THE DRAWER OF THE CHECK, NO RELATION, CONTRACTUAL OR OTHERWISE, EXISTED. THE DRAWER OF A CHECK CANNOT MAINTAIN AN ACTION AGAINST ONE WHO COLLECTS IT ON A FORGED INDORSEMENT FROM THE BANK ON WHICH IT WAS DRAWN, ALTHOUGH THE BANK PAYING THE CHECK MAY. THE REMEDY OF THE DRAWER IS AGAINST THE BANK WHICH PAYS HIS CHECK, AND THE BANK'S REMEDY IS AGAINST THE PERSON TO WHOM IT PAID. THE LIABILITY OF THE PARTY COLLECTING THE CHECK ARISES FROM HIS IMPLIED WARRANTY OF THE INDORSEMENT. THIS LIABILITY IS FOUNDED ON CONTRACT AND NOT ON NEGLIGENCE, AND IT EXISTS IF AT ALL WHETHER THERE WAS NEGLIGENCE OR NOT. BUT IF WE CONSIDER THE QUESTION IN THIS LIGHT THE PLAINTIFF HAS NO CASE. THE FRAUD WAS IN EFFECT CONSUMMATED WHEN THE CHECK WAS DELIVERED TO ASHLEY. WOULD HAVE RECEIVED MONEY IN INSTEAD OF A CHECK IF HE HAD ASKED FOR IT, OR HE COULD HAVE DRAWN THE MONEY IN THE BANKING DEPARTMENT IN AN ADJOINING ROOM. ANY RIGHT OF THE TRUST COMPANY TO RECOVER MUST REST ON THE ASSUMPTION OF ITS ENTIRE GOOD FAITH AND INNOCENCE; AND IF IT GAVE A CHECK TO ASHLEY WITH ANY RESERVATION OR DOUBT AS TO HIS HONESTY IN THE TRANSACTION, IT IS ESTOPPED BY THE FACT THAT IT GAVE TO ONE OF WHOM IT HAD REASON TO BE SUSPICIOUS, THE MEANS OF PERPETRATING A FRAUD ON OTHERS. THE OFFICERS OF THE TRUST COMPANY OF COURSE HAD NO DOUBT. THEY ACTED IN ENTIRE GOOD FAITH, AND IT MAY BE CONCEDED WITH ORDINARY PRUDENCE; BUT THE LOSS WAS OCCASIONED BY THEIR ERROR, AND THERE IS NO REASON, LEGAL OR EQUITABLE, WHY IT SHOULD BE SHIFTED TO ANOTHER.'

THAT LANGUAGE IS APPARENTLY SOMEWHAT INCONSISTENT WITH THE EXEMPTION TO THE IMPOSTOR RULE WHICH IS SET OUT IN YOUR DECISION OF OCTOBER 18, 1938, AND IN OTHER DECISIONS OF THE GENERAL ACCOUNTING OFFICE. SEE (1932) 11 COMP. GEN. 447; AND DECISION OF AUGUST 5, 1931 (A-37342) (11 COMP. GEN. 48).

IN THE EMPORIA NATIONAL BANK CASE, WHILE THE IMPOSTOR APPARENTLY CONTINUED HIS IMPOSITION, IT WAS ARGUED BY COUNSEL FOR THE PLAINTIFF, WHO SOUGHT RECLAMATION, THAT THE CASHING BANK DID NOT USE SUFFICIENT CARE AND DILIGENCE IN ASCERTAINING THE IDENTITY OF THE PERSON PRESENTING THE DRAFT TO THE BANK. THE COURT SAID (AT PAGE 373):

"COUNSEL FOR SHOTWELL CLAIMS THAT THE NATIONAL BANK DID NOT USE SUFFICIENT CARE AND DILIGENCE IN HAVING THE PAYEE OF THE DRAFT IDENTIFIED. THIS IS NOT IMPORTANT UNDER THE CIRCUMSTANCES PRESENTED. THE VITAL POINT IN THIS CASE IS, THAT SHOTWELL INTENDED THE DRAFT TO BE SENT TO THE PARTY EXECUTING THE NOTES AND MORTGAGES, AND INTENDED IT TO BE PAID TO THE PERSON TO WHOM HE SENT IT AND WHOM HE DESIGNATED BY THE NAME OF DANIEL GUERNSEY, BECAUSE THAT WAS THE NAME WHICH HE ASSUMED IN EXECUTING THE NOTES AND MORTGAGES; AND THEREFORE THE NATIONAL BANK IS PROTECTED IN PAYING THE DRAFT TO THE VERY PERSON WHOM SHOTWELL INTENDED TO DESIGNATE BY THE NAME OF DANIEL GUERNSEY.'

YOUR ATTENTION IS ALSO CALLED TO CERTAIN OTHER CASES WHICH SEEM TO BE OUT OF ACCORD WITH THE POSITION TAKEN BY YOUR OFFICE ON THE EXCEPTION. COMMERCIAL BANK AND TRUST CO. V. SOUTHERN INDUSTRIAL BANKING CORPORATION (TENN.APP. 1932) 66 S.W./2D) 209, CERTIORARI DENIED BY SUPREME COURT OF TENNESSEE ON FEBRUARY 25, 1933: MERIDIAN NAT. BANK OF INDIANAPOLIS V. FIRST NAT. BANK OF SHELBYVILLE (IND.APP. 1893) 33 N.E. 247, REHEARING DENIED (1893) 34 N.E. 608. SEE ALSO MEYER V. INDIANA NAT. BANK, (IND.APP. 1901) 61 N.E. 596; NORTH PHILADELPHIA TRUST CO. V. KENSINGTON NAT. BANK (PA. 1938) 196 ATL. 14 (WHERE THE IMPOSTOR APPARENTLY DID NOT CONTINUE HIS IMPOSITION, BUT CHANGED TO HIS TRUE NAME AFTER ENDORSING THE CHECK IN THE NAME OF THE IMPOSTOR); AND FAMOUS SHOE AND CLOTHING CO. V. CROSSWHITE (MO. 1894) 27 S.W. 397 (WHERE THE PURCHASER OF THE CHECK FAILED TO IDENTIFY THE PERSON WHO SOLD THE CHECK).

IN DEALING WITH PERSONS FROM WHOM RECLAMATION IS SOUGHT, IT IS DESIRED THAT THE TREASURER'S OFFICE BE IN A POSITION TO EXPLAIN ANY APPARENT INCONSISTENCY BETWEEN YOUR POSITION ON THE EXCEPTION TO THE IMPOSTOR RULE AND THE LAND TITLE AND TRUST COMPANY CASE AND THE EMPORIA NATIONAL BANK CASE, WHICH YOUR OFFICE HAS RELIED UPON FOR THE GENERAL RULE. IT IS, AS YOU CAN UNDERSTAND, EMBARRASSING TO INFORM PERSONS, FROM WHOM RECLAMATION IS ASKED, THAT THE GOVERNMENT OFFICERS CONSIDER THOSE TWO CASES AS EXCELLENT AUTHORITY FOR THE GENERAL RULE, BUT ARE UNWILLING TO CONCEDE THEIR AUTHORITY IN REGARD TO THE EXCEPTION TO THE RULE WHICH THE GENERAL ACCOUNTING OFFICE HAS MADE. IF POSSIBLE, THE TREASURER'S OFFICE IS DESIROUS OF AVOIDING ANY SUCH EXPLANATION. IT IS, THEREFORE, RESPECTFULLY REQUESTED THAT YOU FURNISH THIS DEPARTMENT WITH THE GROUNDS ON WHICH YOU RECONCILE THE STATEMENTS IN THE TWO CASES AND THE EXCEPTION WHICH YOU HAVE MADE TO THE IMPOSTOR RULE.

IT WOULD APPEAR THAT THE DECISION OF MY PREDECESSOR IN OFFICE IN THE CASE OF WILLIAM H. FILEY, 11 COMP. GEN. 447, MUST HAVE BEEN INTENDED TO CLARIFY AND MAKE MORE DEFINITE HIS PRIOR DECISION IN THE CASE OF PHILIP V. WALTERS, 9 COMP. GEN. 476, RATHER THAN AS AN ANNOUNCEMENT OF AN EXCEPTION TO HIS RULING IN THE LAST MENTIONED CASE.

HOWEVER, IN VIEW OF THE CONTENTS OF YOUR LETTER AND THE INCREASING NUMBER OF CASES OF THIS CHARACTER WHICH ARE COMING BEFORE THIS OFFICE FOR CONSIDERATION I HAVE DEEMED IT PROPER TO CONSIDER THE VARIOUS PHASES OF THE LEGAL QUESTION WHICH IS PRESENTED AS TO WHO SHOULD BEAR THE LOSS WHEN A PERSON OBTAINS A CHECK BY IMPERSONATING THE PARTY WHO WAS IN FACT ENTITLED TO RECEIVE IT AND SUCCESSFULLY CONSUMMATES HIS FRAUDULENT SCHEME BY NEGOTIATING IT TO A THIRD PARTY WHO CASHES THE INSTRUMENT IN GOOD FAITH.

CASES INVOLVING THIS QUESTION HAVE BEEN DECIDED BY THE COURTS OF LAST RESORT OF SEVERAL OF THE STATES AND ALTHOUGH SOME OF THESE DECISIONS HAVE BEEN RENDERED SUBSEQUENT TO THE ADOPTION OF THE UNIFORM NEGOTIABLE INSTRUMENTS LAW THE COURTS HAVE NOT ALWAYS REFERRED TO ITS PROVISIONS IN DETERMINING THE MATTER BUT IN SOME CASES HAVE DECIDED THE QUESTION UNDER THE APPLICABLE PRINCIPLES OF THE COMMON LAW OR LAW MERCHANT.

IT APPEARS THAT IN A MAJORITY OF THE STATE COURTS WHICH HAVE CONSIDERED THE MATTER IT HAS BEEN HELD THAT WHEN A CHECK IS DRAWN AND DELIVERED TO AN IMPOSTOR WHO NEGOTIATES IT IN THE NAME OF THE RIGHTFUL PAYEE TO A THIRD PARTY, THE DRAWER OR DRAWEE THEREOF MUST BEAR THE LOSS AND NOT THE CASHING INDORSER OR SUBSEQUENT HOLDER. OTHER STATE COURTS HAVE HELD THAT THE FACT THAT DRAWER WAS DECEIVED AS TO THE IDENTITY OF THE PERSON TO WHOM HE DELIVERS A CHECK DOES NOT RELIEVE THE THIRD PARTY TO WHOM THE CHECK IS NEGOTIATED FROM HIS DUTY OF ASCERTAINING THE IDENTITY OF THE PERSON FOR WHOM HE CASHES IT, AND THAT THE CASHING INDORSER OR A SUBSEQUENT HOLDER THEREOF IS LIABLE TO THE DRAWEE BY REASON OF THE WARRANTY IMPLIED BY HIS UNRESTRICTED INDORSEMENT OF THE INSTRUMENT. THE LATTER VIEW APPEARS TO BE THAT OF THE SUPREME COURT OF THE UNITED STATES.

IN THE CASE OF UNITED STATES V. NATIONAL EXCHANGE BANK OF PROVIDENCE, 214 U.S. 302, DRAFTS WERE ISSUED BY A PENSION AGENT OF THE UNITED STATES AS THE RESULT OF FRAUDULENT AND FORGED VOUCHERS AND AFFIDAVITS. ALSO, THE INDORSEMENTS OF THE PAYEES' NAMES UPON THE DRAFTS WERE FORGED AND THE SUPREME COURT OF THE UNITED STATES, IN HOLDING THAT THE GOVERNMENT COULD RECOVER THE AMOUNT OF THE DRAFTS FROM THE BANK WHICH HAD COLLECTED THEM FROM IT, SAID:

* * * THE REQUIREMENT BY THE GOVERNMENT OF PROOF, FOR ITS OWN PROTECTION, AFFORDS NO GROUND FOR THE CONTENTION THAT AS TO ANY ACTION TAKEN AS THE RESULT OF THE FURNISHING OF SUCH PROOF THE GOVERNMENT IS ESTOPPED AS TO THIRD PARTIES FROM SHOWING THAT THE PROOFS FURNISHED WERE FALSE AND FRAUDULENT AND THAT THE GOVERNMENT HAD BEEN DECEIVED THEREBY. TO SO HOLD WOULD BE TO SAY THAT FROM THE ACT OF EXERTING A PRECAUTION AGAINST FRAUD THERE AROSE A PRESUMPTION BY WHICH THE FRAUD COULD BE SUCCESSFULLY ACCOMPLISHED. THIS WOULD BE THE CASE IF IT WERE NOW HELD THAT BECAUSE BY FORGED VOUCHERS THE GOVERNMENT WAS DECEIVED INTO ACTING, THIRD PARTIES HAD A RIGHT TO RELY UPON THE INTEGRITY OF THE PROOF AND TO ESTOP THE GOVERNMENT AS THOUGH REPRESENTATIONS AS TO THE VERITY OF SUCH PROOF HAD BEEN MADE BY IT TO SUCH THIRD PARTIES. THE RIGHTS, THEREFORE, OF THE BANK AS THE APPARENT ACQUIRER OF THE PENSION CHECKS ARE TO BE GOVERNED BY THE NATURE AND CHARACTER OF THE INSTRUMENTS AND CANNOT BE ENLARGED SO AS TO RELIEVE THE BANK FROM THE OBLIGATION OF WARRANTY IMPLIED IN THE PRESENTATION OF THE CHECKS AND THE COLLECTING OF THE AMOUNT. THE SUBJECT IS APTLY ILLUSTRATED IN THE OPINION BY COXE, JUDGE, IN UNITED STATES V. ONONDAGA COUNTY SAVINGS BANK, 39 FED.REP. 259, AFFIRMED BY THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT IN 64 FED.REP. 703. IN THE CASE OF UNITED STATES V. ONONDAGA COUNTY SAVINGS BANK, 39 FED. 260, WHICH IS REFERRED TO IN COMMENDATORY TERMS IN THE ABOVE-QUOTED OPINION OF THE SUPREME COURT OF THE UNITED STATES, JUDGE COXE, OF THE DISTRICT COURT OF THE NORTHERN DISTRICT OF NEW YORK, STATED THE RULE AS FOLLOWS:

* * * MONEY PAID UNDER A MISTAKE OF FACT MAY BE RECOVERED BACK. NEGLIGENCE OF THE PLAINTIFF IN MAKING THE MISTAKE DOES NOT GIVE THE DEFENDANT THE RIGHT TO RETAIN WHAT IS NOT HIS, UNLESS SUCH NEGLIGENCE HAS SO MISLED AND PREJUDICED HIM THAT IT WOULD BE INEQUITABLE TO REQUIRE HIM TO REFUND. A PARTY WHO TRANSFERS A BILL OF EXCHANGE BY INDORSEMENT WARRANTS THAT THE INSTRUMENT IS GENUINE, AND IS LIABLE UPON THE WARRANTY IF ANY OF THE NAMES PRIOR TO HIS OWN ARE FORGED. * * * THE PENSION WAS GRANTED, THE VOUCHERS WERE SIGNED, AND THE DRAFTS ISSUED IN THE USUAL COURSE OF BUSINESS. EVERY REQUIREMENT OF THE LAW WAS FULFILLED. * * * THEY (MEANING THE BANK) REQUIRED THE IDENTIFICATION OF THE PAYEE'S SIGNATURE, AND INDORSED A MINUTE OF THE FACT THAT IT WAS SO IDENTIFIED ON THE DRAFT IMMEDIATELY BELOW THAT SIGNATURE. BOTH THE PLAINTIFF AND THE DEFENDANTS WERE BOUND TO INQUIRE INTO AND SATISFY THEMSELVES OF THE GENUINENESS OF THE INDORSEMENT. THE DEFENDANTS RECOGNIZED THIS OBLIGATION, AND PROCEEDED TO MAKE THE INQUIRY, AND, BY INDORSING THE DRAFT, WARRANTED THE PRIOR SIGNATURES. * * * AND THE CIRCUIT COURT OF APPEALS OF THE SECOND CIRCUIT IN AFFIRMING THE JUDGMENT WHICH HAD BEEN ENTERED IN FAVOR OF THE GOVERNMENT. 64 FED. 703, SAID:

* * * IT IS ARGUED THAT THE LOSS WAS THE NATURAL AND PROXIMATE RESULT OF NEGLIGENCE IN ISSUING THE DRAFTS. IT APPEARS, HOWEVER, THAT THEY WERE ISSUED ONLY UPON THE RECEIPT OF VOUCHERS REGULAR IN FORM * * * THE GOVERNMENT HAD A RIGHT TO RELY UPON THE FACT THAT THE ASSISTANT TREASURER WOULD PAY OUT NO MONEY ON THE DRAFT EXCEPT TO ALMA WOOD PERSONALLY, UPON PROOF OF HER IDENTITY, OR TO SOME RESPONSIBLE PERSON PRESENTING HER INDORSEMENT AND GUARANTYING ITS GENUINENESS; AND IT IS NO DEFENSE TO A CLAIM THAT AN INDORSEE WHO HAS, BY A FORGED INDORSEMENT, RECEIVED FROM THE DRAWEE MONEY TO WHICH HE IS NOT ENTITLED, SHALL REFUND THE SAME, TO SHOW THAT THE SAME PERSON WHO DECEIVED HIM INTO PAYING MONEY ON THE FORGED INDORSEMENT OF THE DRAFT ALSO INDUCED THE GOVERNMENT TO ISSUE THE DRAFT ON A FORGED SIGNATURE TO THE VOUCHER.

THE LOGICAL CONCLUSION WHICH IS TO BE DRAWN FROM THE LANGUAGE USED BY THE SUPREME COURT IN THE NATIONAL EXCHANGE BANK OF PROVIDENCE CASE IS THAT THE ISSUANCE BY THE GOVERNMENT OF A CHECK TO A PERSON IN CONSEQUENCE OF THE SUBMISSION BY HIM OF SUCH PROOF OF HIS IDENTITY AS THE REGULATIONS OF THE GOVERNMENT MAY REQUIRE DOES NOT RELIEVE A THIRD PARTY TO WHOM THE CHECK MAY BE NEGOTIATED BY THAT PERSON FROM ASCERTAINING AT HIS PERIL THE IDENTITY OF THE PERSON FOR WHOM HE CASHES THE CHECK AS THE TRUE PAYEE NAMED THEREIN, AND THAT THE FACT THAT SUCH THIRD PARTY CASHES THE CHECK FOR THE SAME PERSON TO WHOM THE GOVERNMENT WAS DECEIVED INTO ISSUING IT DOES NOT PRECLUDE THE GOVERNMENT FROM OBTAINING REIMBURSEMENT FOR THE AMOUNT OF THE INSTRUMENT.

THIS EXPRESSION OF OPINION BY THE SUPREME COURT OF THE UNITED STATES APPEARS TO LAY DOWN A RULE WHICH MAY WELL BE APPLIED IN PRACTICALLY ALL CASES IN WHICH AN IMPOSTOR OBTAINS A CHECK FROM THE GOVERNMENT.

ACCORDINGLY, UPON A CONSIDERATION OF THE ABOVE-CITED DECISIONS AS WELL AS THOSE REFERRED TO IN YOUR LETTER OF FEBRUARY 21, 1939, I HAVE CONCLUDED THAT THE INTERESTS OF THE GOVERNMENT WOULD SEEM TO REQUIRE THAT IN ANY CASE WHERE AN IMPOSTOR NEGOTIATES A CHECK WHICH HE HAD OBTAINED, EITHER IN PERSON OR BY MAIL, FROM THE GOVERNMENT, RECLAMATION PROCEEDINGS SHOULD BE INSTITUTED UPON DISCOVERY OF THE FRAUD, IRRESPECTIVE OF WHETHER THERE WAS ANY NEGLIGENCE ON THE PART OF THE ORIGINAL HOLDER FOR VALUE IN ASCERTAINING THE IDENTITY OF THE PERSON FOR WHOM HE CASHED THE INSTRUMENT AND THAT, IF NECESSARY TO EFFECT RECOVERY, SUCH CASES SHOULD BE PROSECUTED TO FINAL JUDICIAL DETERMINATION.

ANY DECISIONS OF MY PREDECESSORS IN OFFICE IN CONFLICT HEREWITH WILL NOT BE FOLLOWED HEREAFTER.