B-141231, DEC. 15, 1959

B-141231: Dec 15, 1959

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WHICH WAS ADDRESSED TO THE CHECK CLAIMS DIVISION. MAINTAINING THAT THE BANK'S ENDORSEMENT GUARANTEED THAT THE PERSONTO WHOM THE CHECK WAS ISSUED HAD ENDORSED IT BUT NOT THAT THE CHECK WAS HONESTLY PROCURED FROM THE DRAWER. THE CHECK INVOLVED IN THIS CASE WAS ISSUED TO LESTER CLINES AS A REFUND ON AN INCOME TAX RETURN WHICH HAD BEEN FILED FRAUDULENTLY. THERE IS NO EVIDENCE THAT THE SECURITY STATE BANK WHICH ACCEPTED THE CHECK FROM THE IMPOSTER MADE ANY INQUIRY REGARDING THE PERSON TO WHOM THE CHECK WAS ISSUED AND DELIVERED OR THAT DILIGENCE WAS USED BY THE BANK IN THE CASHING OF THE CHECK. IT IS THE OPINION OF THE EXAMINER OF QUESTIONED DOCUMENTS THAT THE PAYEE. THAT THERE IS NO BASIS FOR IDENTIFYING RALPH CLINES AS THE AUTHOR OF THE ENDORSEMENT OF THE PAYEE'S NAME ON THE CHECK.

B-141231, DEC. 15, 1959

TO THE SECRETARY OF THE TREASURY:

ON OCTOBER 23, 1959, THE SPECIAL ASSISTANT TREASURER, FISCAL SERVICE, TRANSMITTED TO THE DIRECTOR OF OUR CLAIMS DIVISION A LETTER DATED SEPTEMBER 3, 1959, FROM THE WESTERN CASUALTY AND SURETY COMPANY, REQUESTING RECONSIDERATION OF THE ACTION OF OUR CLAIMS DIVISION IN ITS LETTER DATED JULY 21, 1959, WHICH WAS ADDRESSED TO THE CHECK CLAIMS DIVISION, TREASURER OF THE UNITED STATES. THAT LETTER DISALLOWED THE CLAIM OF SURETY COMPANY FOR REFUND OF PAYMENT MADE BY IT AS INSURER OF THE NORTHERN TRUST COMPANY OF CHICAGO, ILLINOIS, THE BANK WHICH SUSTAINED THE LOSS DUE TO RECLAMATION PROCEEDINGS ON CHECK NO. 39624592, DATED APRIL 9, 1953, IN THE AMOUNT OF $296.25 PAYABLE TO LESTER CLINES, WHICH DID NOT CONTAIN THE GENUINE ENDORSEMENT OF LESTER CLINES.

THE INSURER URGES APPLICATION OF THE SO-CALLED "IMPOSTER" RULE, MAINTAINING THAT THE BANK'S ENDORSEMENT GUARANTEED THAT THE PERSONTO WHOM THE CHECK WAS ISSUED HAD ENDORSED IT BUT NOT THAT THE CHECK WAS HONESTLY PROCURED FROM THE DRAWER.

THE CHECK INVOLVED IN THIS CASE WAS ISSUED TO LESTER CLINES AS A REFUND ON AN INCOME TAX RETURN WHICH HAD BEEN FILED FRAUDULENTLY. THE SECOND ENDORSER ON THE CHECK, RALPH CLINES, ALLEGEDLY CASHED IT AT THE SECURITY STATE BANK OF HAMILTON, ILLINOIS. THERE IS NO EVIDENCE THAT THE SECURITY STATE BANK WHICH ACCEPTED THE CHECK FROM THE IMPOSTER MADE ANY INQUIRY REGARDING THE PERSON TO WHOM THE CHECK WAS ISSUED AND DELIVERED OR THAT DILIGENCE WAS USED BY THE BANK IN THE CASHING OF THE CHECK. WHEN THE BANK ACCEPTED THE CHECK FROM THE SECOND ENDORSER IT ASSUMED THE RISK OF HAVING TO REFUND THE AMOUNT OF THE CHECK IN THE EVENT THE FIRST ENDORSEMENT PROVED TO BE A FORGERY.

IT IS THE OPINION OF THE EXAMINER OF QUESTIONED DOCUMENTS THAT THE PAYEE, LESTER CLINES, DID NOT ENDORSE THE CHECK OR SIGN THE TAX RETURN, AND THAT THERE IS NO BASIS FOR IDENTIFYING RALPH CLINES AS THE AUTHOR OF THE ENDORSEMENT OF THE PAYEE'S NAME ON THE CHECK, OR OF THE SIGNATURE ON THE TAX RETURN.

IN OUR DECISION DATED MAY 24, 0939, A-98060, 18 C.G. 880, ADDRESSED TO THE SECRETARY OF THE TREASURY, THERE WAS INVOLVED, AS HERE, THE QUESTION OF 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. RELYING UPON THE CASE OF UNITED STATES V. NATIONAL EXCHANGE BANK OF PROVIDENCE, 214 U.S. 302, THE THEN COMPTROLLER GENERAL HELD THAT THE LOGICAL CONCLUSION TO BE DRAWN FROM THE LANGUAGE USED BY THE SUPREME COURT IS THAT THE ISSUANCE 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 IN ISSUING IT DOES NOT PRECLUDE THE GOVERNMENT FROM OBTAINING REIMBURSEMENT FOR THE AMOUNT OF THE INSTRUMENT. THE COMPTROLLER GENERAL ALSO STATED THAT "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 IMPOSTER OBTAINS A CHECK FROM THE GOVERNMENT.'

THE CHECK IN THIS CASE WAS PAID UPON THE ENDORSEMENT OF THE NORTHERN TRUST COMPANY OF CHICAGO, WHICH EXPRESSLY STATED:

"ALL PRIOR ENDORSEMENTS GUARANTEED"

THE RULE ANNOUNCED IN 18 COMP. GEN. 880, THEREFORE, IS FOR APPLICATION IN THIS CASE. WE DO NOT CONSIDER THIS CASE AS BEING COMPARABLE TO THE CASE CONSIDERED IN UNITED STATES V. UNION TRUST COMPANY OF MARYLAND, 139 F.SUPP. 819. ..END :