B-131303, JUN. 18, 1957

B-131303, JUN. 18, 1957

TO MRS. IVY BAKER PRIEST, TREASURER OF THE UNITED STATES:

ON NOVEMBER 23, 1956, THE SPECIAL ASSISTANT TREASURER FORWARDED FOR OUR CONSIDERATION AND ADVICE THE FILE, CC-465-WJH, REGARDING THE CLAIM OF RUSSELL T. MCCONNELL FOR THE PROCEEDS OF TREASURY (CIVIL AERONAUTICS ADMINISTRATION) CHECK NO. 220,561, DRAWN TO HIS ORDER, DATED DECEMBER 5, 1952, FOR $239.35, BY PAUL D. BANNING, SYMBOL 1342.

THE RECORD INDICATES THAT MR. MCCONNELL RECEIVED THE CHECK ON DECEMBER 5, 1952, ENDORSED IT ,RUSSELL T. MCCONNELL (FOR DEPOSIT ONLY)," AND MAILED IT THE SAME DAY TO THE NATIONAL BANK OF ALASKA, ANCHORAGE, ALASKA. APPARENTLY BECAUSE OF FAILURE OF THE AMOUNT OF THE CHECK TO APPEAR IN HIS BANK STATEMENT, MR. MCCONNELL WROTE TO THE NATIONAL BANK OF ALASKA IN ANCHORAGE ON MARCH 13, 1953, MAKING INQUIRY REGARDING IT, AND ON MARCH 24, 1953, HE WAS ADVISED BY THE BANK THAT THE CHECK COULD NOT BE LOCATED. THEREUPON, MR. MCCONNELL EXECUTED A FORM DATED MARCH 26, 1953, ADVISING THE EXECUTIVE OFFICER OF THE CIVIL AERONAUTICS ADMINISTRATION IN ANCHORAGE, ALASKA, OF THE LOSS OF THE CHECK. A STOP-PAYMENT ORDER ON THE CHECK WAS REQUESTED APRIL 9, 1953, BY THE REGIONAL DISBURSING OFFICER AT JUNEAU, ALASKA, AND RECORDED APRIL 14, BUT WAS CANCELED ON APRIL 16 BECAUSE IT WAS DISCOVERED THAT THE CHECK HAD BEEN PAID ON DECEMBER 23, 1952. AN EXAMINATION OF THE CHECK, WHICH APPARENTLY WAS STOLEN FROM THE MAIL, DISCLOSES THAT MR. MCCONNELL'S ENDORSEMENT, WHICH WAS IN BLUE INK, HAD BEEN ALTERED, THE PORTION READING "FOR DEPOSIT ONLY" HAVING BEEN SCRATCHED OUT IN BLACK INK, LEAVING ONLY MR. MCCONNELL'S SIGNATURE. THE CHECK WAS NEGOTIATED WITHOUT FURTHER ENDORSEMENT BY SOMEONE, PRESUMABLY THE THIEF, AT WINN'S SERVICE STATION, 402 BARNETTE STREET, FAIRBANKS, ALASKA, AND BEARS THE RUBBER STAMP ENDORSEMENT OF THAT CONCERN "FOR DEPOSIT ONLY GILSTRAP AND MARTIN DBA WINN'S SERVICE STATION.'

AFTER DETERMINATION THAT THE CHECK WAS PAID, THE CORRESPONDENCE WAS TRANSMITTED TO US BY THE TREASURER BY COMMUNICATION DATED APRIL 20, 1953, IN ACCORDANCE WITH THE THEN EXISTING PROCEDURE, SINCE THE PAID CHECK WAS ON FILE HERE. DUE TO A CHANGE IN THE PROCEDURE FOLLOWED IN SUCH CASES, THE MATTER WAS RETURNED TO YOU FOR YOUR CONSIDERATION BY LETTER DATED JANUARY 19, 1954, FROM OUR CLAIMS DIVISION. THE MATTER WAS THEN REFERRED BY YOU ON APRIL 7, 1954, TO THE UNITED STATES SECRET SERVICE FOR INVESTIGATION. THE REPORT OF THAT SERVICE, DATED JUNE 22, 1954, SUBSTANTIATED MR. MCCONNELL'S CLAIM, RECOMMENDED SETTLEMENT, AND TRANSMITTED A CLAIM FORM NO. 6576 EXECUTED BY HIM ON JUNE 16, 1954, AT THE REQUEST OF THE SECRET SERVICE. HOWEVER, WHEN RECLAMATION OF THE AMOUNT OF THE CHECK WAS ATTEMPTED, THE BANK OF FAIRBANKS OBJECTED THERETO ON THE GROUNDS THAT MR. MCCONNELL'S ENDORSEMENT CONSTITUTED A BLANK ENDORSEMENT UNDER THE LAWS OF ALASKA, SINCE NO ENDORSEE WAS NAMED THEREIN, THUS MAKING THE CHECK NEGOTIABLE BY DELIVERY AND GILSTRAP AND MARTIN HOLDERS IN DUE COURSE FOR VALUE; THAT EVEN IF THE WORDS "FOR DEPOSIT ONLY" WERE CONSTRUED AS A RESTRICTIVE ENDORSEMENT, STRIKING THEM OUT REINSTATED THE NEGOTIABILITY OF THE CHECK; THAT SINCE MR. MCCONNELL WAS RESPONSIBLE FOR THE ENDORSEMENT OF THE CHECK AND FOR PLACING IT WHERE IT COULD BE LOST OR STOLEN AND NEGOTIATED BY SOMEONE ELSE, HE SHOULD BEAR THE LOSS UNDER THE LEGAL MAXIM THAT WHEN ONE OF TWO INNOCENT PARTIES MUST SUFFER A LOSS FROM THE ACT OF A THIRD PARTY HE WHO PRIMARILY CAUSED THE LOSS MUST BEAR IT; AND THAT GILSTRAP AND MARTIN ARE NOT SATISFIED THAT MR. MCCONNELL DID NOT NEGOTIATE THE CHECK HIMSELF SINCE HE ADMITS HIS HAVING BEEN IN FAIRBANKS AND HIS MAILING THE CHECK THERE AND WAITED UNTIL JUNE 16, 1954, ALMOST 18 MONTHS LATER, TO FILE HIS CLAIM.

THE BANK OF FAIRBANKS DOES NOT CITE, NOR HAVE WE BEEN ABLE TO FIND, ALASKAN COURT DECISIONS ON THE QUESTION OF WHETHER AN ENDORSEMENT "FOR DEPOSIT ONLY" WITHOUT NAMING THE BANK IS A RESTRICTIVE ENDORSEMENT. HOWEVER, THE COURT OF ERRORS AND APPEALS OF NEW JERSEY, IN THE CASE OF ATLANTIC CITY NATIONAL BANK V. COMMERCIAL LUMBER CO., 155 A 762, HELD THAT AN ENDORSEMENT "FOR DEPOSIT ONLY" WHICH DID NOT NAME A BANK WAS A RESTRICTIVE ENDORSEMENT UNDER PROVISIONS OF NEW JERSEY LAW IDENTICAL WITH THE INVOLVED ALASKAN LAW. MOREOVER, THE COURT OF APPEALS OF NEW YORK IN SOMA V. HANDRULIS, 14 N.E.2D 46, A CASE INVOLVING A CHECK ENDORSED "FOR DEPOSIT" WITHOUT NAMING A BANK, HELD THAT

"A CHECK WHICH HAS BEEN INDORSED BY THE PAYEE "FOR DEPOSIT" WAS NONNEGOTIABLE FOR ANY PURPOSE AND COULD NOT BE TRANSFERRED BY DELIVERY, NOR COULD THE INDORSEMENT BE TREATED AS AN "INDORSEMENT IN BLANK.'

"AN INDORSEMENT "FOR DEPOSIT" WAS RESTRICTIVE AND PROHIBITED FURTHER NEGOTIATION FOR ANY PURPOSE EXCEPT FOR COLLECTION FOR DEPOSIT TO INDORSER'S ACCOUNT, IN A BANK OF INDORSER'S SELECTION.

"AN INDORSEMENT "FOR DEPOSIT" GAVE NOTICE OF ITS RESTRICTIVE AND NONNEGOTIABLE CHARACTER GENERALLY AND OF INDORSER'S CONTINUED TITLE TO ALL PARTIES INTO WHOSE HANDS THE CHECK MIGHT COME.'

ALSO, IN COHN V. TRADE BANK OF NEW YORK, 262 NYS 797 AND 269 NYS 143, THE NEW YORK SUPREME COURT, APPELLATE TERM, AND THE NEW YORK SUPREME COURT, APPELLATE DIVISION, RESPECTIVELY, HELD THAT AN ENDORSEMENT "FOR DEPOSIT" RESTRICTS FURTHER NEGOTIATION OF A CHECK. LIKEWISE, IN HASKELL V. AVERY, 63 NE 15, THE SUPREME JUDICIAL COURT OF MASSACHUSETTS STATED THAT AN ENDORSEMENT "FOR DEPOSIT" "IS RESTRICTIVE IN THE SENSE THAT IT GIVES NOTICE OF THE TRUST TO ANYONE WHO SHOULD TAKE THE NOTE THEREAFTER, AND THEREFORE MAKES IT IMPOSSIBLE FOR ONE WHO SHOULD DISCOUNT IT FOR THE HOLDER TO RETAIN THE PROCEEDS, WHEN COLLECTED, TO HIS OWN USE.' HENCE, THERE APPEARS TO BE AMPLE JUDICIAL PRECEDENT FOR CONSIDERING MR. MCCONNELL'S ENDORSEMENT AS RESTRICTIVE UNDER THE LAWS OF ALASKA, NOTWITHSTANDING THE BANK OF FAIRBANKS' CONTENTION TO THE CONTRARY. THAT CONNECTION IT SHOULD BE NOTED THAT THE ENDORSEMENT OF GILSTRAP AND MARTIN, THE SECOND ENDORSERS ON THE CHECK, IS A RUBBER STAMP ENDORSEMENT CONTAINING ONLY THE WORDS "FOR DEPOSIT ONLY" AND THE NAME OF THE ENDORSER, WITH NO BANK BEING NAMED THEREIN. THIS, OF COURSE, IS NOT CONCLUSIVE BUT IT IS EVIDENCE TENDING TO INDICATE THE CUSTOMARY USE OF SUCH ENDORSEMENTS IN ALASKA.

WHILE THE NEGOTIABLE INSTRUMENTS LAW AS ADOPTED IN ALASKA PERMITS A HOLDER TO STRIKE OUT ANY ENDORSEMENT NOT NECESSARY TO HIS TITLE (ALASKA COMPILED LAWS, ANNOTATED, 1949, 27-1-59), THIS PERMISSION APPLIES ONLY TO A PERSON HAVING LAWFUL POSSESSION OF AND TITLE TO AN INSTRUMENT AND DOES NOT PERMIT A PERSON TO STRIKE OUT AN ENDORSEMENT OR PART OF AN ENDORSEMENT WHICH CLEARLY INDICATES LACK OF TITLE IN THE PERSON SO STRIKING. ANY STRICKEN ENDORSEMENT APPEARING ON A CHECK SHOULD, ON ATTEMPTED NEGOTIATION, INDUCE INQUIRY BY THE PARTY TO WHOM THE CHECK IS TENDERED AND WHERE, AS HERE, IT READILY CAN BE SEEN THAT THE STRICKEN PORTION WAS INTENDED TO RESTRICT NEGOTIATION OF THE CHECK, THE PARTY TO WHOM THE CHECK IS TENDERED IS PLACED ON NOTICE OF A POSSIBLE DEFECT IN THE TITLE OF THE NEGOTIATOR AND IS LEGALLY CHARGEABLE WITH NOTICE OF ALL THE FACTS THAT A REASONABLY DILIGENT INQUIRY WOULD DISCLOSE. IN SCOTT V. WILKINSON, 110 SO. 34, A CASE INVOLVING NEGOTIATION OF AN INSTRUMENT ON WHICH A RESTRICTIVE ENDORSEMENT HAD BEEN STRICKEN OUT, THE SUPREME COURT OF ALABAMA STATED:

"THE PURCHASER OF NEGOTIABLE PAPER IN DUE COURSE IS A FAVORITE OF THE LAW, BUT HE IS NEVERTHELESS CHARGEABLE WITH NOTICE OF EVERY FACT SHOWN UPON THE FACE OR THE BACK OF THE INSTRUMENT.'

THE COURT WENT ON TO SAY:

"APPELLEE'S OFFICERS, WHO WERE REPRESENTING IT IN THIS TRANSACTION, MADE NO INQUIRY WHATEVER AS TO THE PRESENCE OF THE INDORSEMENT ON THE NOTE--- WHY IT WAS PLACED THERE, WHY IT WAS CANCELLED BY CROSS LINES AND BY WHOM, OR WHO AND WHERE THE INDORSEES WERE. PRESUMABLY, THE PAYEE AND INDORSER, IDA KELLEY, WOULD HAVE GIVEN INFORMATION WARNING APPELLEE OF THE TRUE OWNERSHIP OF THE NOTE HAD IT BEEN ASKED FOR IN CONNECTION WITH THE POWER OF ATTORNEY REQUIRED OF HER. OUR CLEAR CONVICTION IS THAT APPELLEE WAS GUILTY OF FLAGRANT NEGLIGENCE, WHICH COMPELS THE CONCLUSION OF BAD FAITH, IN THE PURCHASE OF THE NOTE.'

THERE IS NOTHING IN THE RECORD TO INDICATE THAT GILSTRAP AND MARTIN MADE ANY INQUIRY REGARDING THE STRICKEN ENDORSEMENT, AND IT IS OBVIOUS THAT THE PAYEE OF THE CHECK WOULD HAVE ADVISED THEM OF THE TRUE STATE OF AFFAIRS HAD INEQUITY BEEN MADE OF HIM. HENCE, THERE APPEARS TO BE LITTLE IF ANY MERIT IN THE SECOND CONTENTION OF THE BANK OF FAIRBANKS.

REGARDING THE THIRD CONTENTION OF THE BANK OF FAIRBANKS, THE SUPREME COURT OF ALABAMA IN THE CASE OF SCOTT V. WILKINSON, SUPRA, WHERE THE IDENTICAL CONTENTION WAS RAISED, STATED THE LAW THEREON AS FOLLOWS:

"TO RENDER AVAILABLE THE MAXIM THAT, WHERE ONE OF TWO INNOCENT PARTIES MUST SUFFER LOSS FROM THE ACT OF A THIRD PARTY, HE MUST BEAR THE LOSS WHOSE CONDUCT HAS PRIMARILY CAUSED IT, THE PARTY INVOKING THE PRINCIPLE MUST SHOW THAT THE OTHER PARTY HAS DONE OR OMITTED SOME ACT IN THE NATURE OF NEGLIGENCE WHICH PROMPTED AND RENDERED FEASIBLE THE DECEPTION PRACTICED UPON HIMSELF.'

APPLYING THAT STATEMENT OF THE LAW TO THE SITUATION THERE INVOLVED, THE COURT WENT ON TO SAY:

"THAT MAXIM CAN HAVE NO APPLICATION TO A CASE LIKE THIS. HERE THE SCOTTS DID NO MORE THAN INTRUST THE POSSESSION OF THE NOTE TO KELLEY, WITH AUTHORITY TO COLLECT IT AND WITH IMPLIED AUTHORITY, OF COURSE, TO CANCEL AND SURRENDER IT WHEN PAID. IT CARRIED ON ITS FACE THE PLAIN EVIDENCE OF ITS OWNERSHIP; VIZ., THE SPECIAL INDORSEMENT OF THE PAYEE TO THE SCOTTS. EXCEPT BY A FRAUDULENT ALTERATION, SWEEPING AND APPARENT, THE AGENT COULD NOT USE THE NOTES AS THE PROPERTY OF ANY ONE BUT THE INDORSEES; AND THE ACT OF THE INDORSEES IN GIVING THE MERE POSSESSION OF THE NOTES TO KELLEY WAS IN NO SENSE NEGLIGENT OR CULPABLE, NOR WAS ITS PROMOTIVE OF KELLEY'S FRAUDULENT DECEPTION OF THE APPELLEE IN ANY LEGAL SENSE.'

IT IS APPARENT THAT THE MAXIM LIKEWISE IS NOT FOR APPLICATION HERE. ALL THAT MR. MCCONNELL DID WAS TO ENTRUST TO THE SAFETY OF THE UNITED STATES MAILS A CHECK BEARING HIS RESTRICTIVE ENDORSEMENT, WHICH IS AN EXCEEDINGLY COMMON PRACTICE AND ONE THAT CERTAINLY CANNOT BE CONSIDERED AS CONSTITUTING NEGLIGENCE.

THE FOURTH AND LAST CONTENTION PRESENTED BY THE BANK OF FAIRBANKS ALSO APPEARS WITHOUT MERIT. THE STATEMENT THAT THE SECOND ENDORSERS ARE NOT SATISFIED THAT MR. MCCONNELL DID NOT NEGOTIATE THE CHECK HIMSELF IS A MERE ALLEGATION COMPLETELY UNSUPPORTED BY THE RECORD. AS INDICATED HEREINBEFORE, THE REPORT OF THE INVESTIGATION CONDUCTED BY THE UNITED STATES SECRET SERVICE SUBSTANTIATED MR. MCCONNELL'S CLAIM. MOREOVER, THE STATEMENT THAT MR. MCCONNELL WAITED UNTIL JUNE 16, 1954, ALMOST 18 MONTHS AFTER HE MAILED THE CHECK, BEFORE FILING THE CLAIM IS CLEARLY A MISUNDERSTANDING. THAT DATE IS MERELY THE DATE OF THE CLAIM FORM NO. 6576 WHICH WAS EXECUTED BY MR. MCCONNELL AT THAT TIME AT THE REQUEST OF THE SECRET SERVICE. THE RECORD CLEARLY SHOWS THAT MR. MCCONNELL FIRST INQUIRED ABOUT THE CHECK BY LETTER TO THE NATIONAL BANK OF ALASKA DATED MARCH 13, 1953, A LITTLE OVER THREE MONTHS SUBSEQUENT TO DATE OF MAILING; THAT HE ADVISED THE CIVIL AERONAUTICS ADMINISTRATION OF THE LOSS IMMEDIATELY AFTER BEING NOTIFIED BY THE BANK THAT THE CHECK HAD NOT BEEN RECEIVED; AND THAT ANY SUBSEQUENT DELAYS WERE IN NO WAY ATTRIBUTABLE TO HIM.

ACCORDINGLY, YOU ARE ADVISED THAT, ON THE BASIS OF THE PRESENT RECORD, RECLAMATION PROCEEDINGS SHOULD BE CONTINUED AND THE AMOUNT RECOVERED SHOULD BE TRANSMITTED TO THE PAYEE AT HIS LATEST ADDRESS OF RECORD.