B-163907, JUN. 21, 1968

B-163907: Jun 21, 1968

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

SIMON AND SPARROWE: REFERENCE IS MADE TO YOUR LETTER OF MARCH 28. THE CHECKS WERE DRAWN TO THE ORDER OF MRS. HOULIHAN WAS AUTHORIZED. WE HAVE RECEIVED UNDER YOUR TRANSMITTAL LETTER OF APRIL 26. IS TOTALLY INOPERATIVE AND DOES NOT TRANSFER TITLE TO COMMERCIAL PAPER. IN WHICH CASE THERE IS NO FORGERY. THESE PRINCIPLES ARE IN ARTICLE 3 OF THE UNIFORM COMMERCIAL CODE. CENTRAL TO YOUR ARGUMENT IS THE ALLEGATION THAT JOHN C. SINCE THE REDEMPTION WAS UNAUTHORIZED. HOULIHAN WAS APPOINTED CONSERVATOR OF THE PERSON AND PROPERTY OF MRS. ALTHOUGH YOU HAVE SUBMITTED COPIES OF GRAND JURY TESTIMONY INDICATING THAT MRS. WHITLOCK MAY NOT HAVE BEEN PROPERLY SERVED WITH NOTICE OF THE HEARING ON THE PETITION FOR APPOINTMENT.

B-163907, JUN. 21, 1968

TO STARK, SIMON AND SPARROWE:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 28, 1968, WITH ENCLOSURES, IN WHICH YOU PRESENT FOR SETTLEMENT IN THIS OFFICE THE CLAIM OF THE ESTATE OF SARILLA L. WHITLOCK, DECEASED, IN THE AMOUNT OF $49,802.50, REPRESENTING THE VALUE OF FOUR UNITED STATES TREASURY CHECKS (TREASURY SYMBOL 885; NO. 100,898, MARCH 29, 1963; NO. 105,545, MAY 1, 1963; NO. 123,888, AUGUST 1, 1964; NO. 123,955, AUGUST 1, 1964). THE CHECKS WERE DRAWN TO THE ORDER OF MRS. SARILLA L. WHITLOCK IN REDEMPTION OF HER UNITED STATES SAVINGS BONDS, AND YOU ALLEGE THAT AFTER DELIVERY OF THE CHECKS HER CONSERVATOR, JOHN C. HOULIHAN, NEGOTIATED THEM BY HIS FORGED INDORSEMENTS IN MRS. WHITLOCK'S NAME. THE DEPUTY TREASURER, FISCAL SERVICE, HAS DENIED THE CLAIM AGAINST THE CHECK FORGERY INSURANCE FUND UNDER 31 U.S.C. 561, ET. SEQ., ON THE BASIS THAT JOHN C. HOULIHAN WAS AUTHORIZED, BECAUSE OF HIS CONSERVATORSHIP, TO INDORSE THE CHECKS. WE HAVE RECEIVED UNDER YOUR TRANSMITTAL LETTER OF APRIL 26, 1968, A POWER OF ATTORNEY EXECUTED BY THE ADMINISTRATORS OF THE ESTATE, ETHEL OLSON AND LILLIAN SEARLE, DESIGNATING YOU THEIR ATTORNEYS TO ENFORCE THE CLAIM.

A FORGED SIGNATURE, INCLUDING A FORGED INDORSEMENT WITHIN THE MEANING OF 31 U.S.C. 562, IS TOTALLY INOPERATIVE AND DOES NOT TRANSFER TITLE TO COMMERCIAL PAPER. HOWEVER, AN AGENT OR OTHER REPRESENTATIVE WHEN DULY AUTHORIZED MAY EFFECTIVELY INDORSE AN INSTRUMENT IN THE NAME OF THE PERSON HE REPRESENTS, IN WHICH CASE THERE IS NO FORGERY. THESE PRINCIPLES ARE IN ARTICLE 3 OF THE UNIFORM COMMERCIAL CODE, SECTIONS 3 403 AND 3-404, UNIFORM LAWS ANNOTATED. THE UNIFORM COMMERCIAL CODE HAS BEEN ADOPTED IN 50 STATES AND THE DISTRICT OF COLUMBIA. UNLESS STATUTE, REGULATION OR DECISIONAL LAW CLEARLY INDICATES TO THE CONTRARY, ARTICLE 3, COMMERCIAL PAPER, APPLIES TO THE ISSUANCE, TRANSFER AND DISCHARGE OF TREASURY DEPARTMENT CHECKS.

CENTRAL TO YOUR ARGUMENT IS THE ALLEGATION THAT JOHN C. HOULIHAN REDEEMED THE BONDS WITHOUT A COURT ORDER AND THEREBY VIOLATED SECTIONS 1530 AND 1540 OF THE CALIFORNIA PROBATE CODE, WHICH REQUIRE A COURT ORDER TO AUTHORIZE, RESPECTIVELY, A SALE OR EXCHANGE OF THE PROPERTY OF BOTH A WARD AND UNDER SECTION 1852 A CONSERVATEE. ACCORDING TO YOUR VIEW, SINCE THE REDEMPTION WAS UNAUTHORIZED, JOHN C. HOULIHAN LACKED AUTHORITY TO INDORSE THE CHECKS DELIVERED IN PAYMENT FOR THE BONDS.

JOHN C. HOULIHAN WAS APPOINTED CONSERVATOR OF THE PERSON AND PROPERTY OF MRS. WHITLOCK PURSUANT TO SECTION 1751 OF THE CALIFORNIA PROBATE CODE. ALTHOUGH YOU HAVE SUBMITTED COPIES OF GRAND JURY TESTIMONY INDICATING THAT MRS. WHITLOCK MAY NOT HAVE BEEN PROPERLY SERVED WITH NOTICE OF THE HEARING ON THE PETITION FOR APPOINTMENT, THIS OFFICE MUST ASSUME THE APPOINTMENT WAS VALID. AS A CONSERVATOR, JOHN C. HOULIHAN HAD THE POWERS OF A GUARDIAN TO MANAGE MRS. WHITLOCK,SESTATE, PAY HER DEBTS, COLLECT DEBTS DUE TO HER, SUPPORT HER WITH THE INCOME OF HER ESTATE, AND MAKE BANK ACCOUNT DEPOSITS AND WITHDRAWALS OF HER MONEY (CALIFORNIA PROBATE CODE, SECTIONS 1852, 1500 1502, 1513). THESE POWERS WERE THE EQUIVALENT OF EXPRESS AUTHORITY TO NEGOTIATE CHECKS DRAWN TO THE ORDER OF MRS. WHITLOCK. MIGHT, FOR THE PURPOSE OF DISCUSSION, ACCEPT YOUR VIEW THAT REDEMPTION OF THE BONDS WAS IN VIOLATION OF THE PROBATE CODE BECAUSE THERE WAS A SALE OR EXCHANGE OF THE CONSERVATEE'S PROPERTY WITHOUT A COURT ORDER. THE PROBATE CODE WOULD THEN BE A LIMITATION ON MR. HOULIHAN'S GENERAL POWER TO INDORSE. EVEN IF THIS WERE THE CASE, IT IS TO BE OBSERVED THAT THE PAYING BANKS HAD NO PRACTICABLE MEANS OF DETERMINING THE LEGALITY OF THE BOND REDEMPTION, AND GENERALLY SUBSEQUENT HOLDERS CANNOT BE EXPECTED TO KNOW WHETHER AN INDORSER ACTING IN A REPRESENTATIVE CAPACITY HAD AUTHORITY TO ENTER INTO THE TRANSACTION RESULTING IN DELIVERY TO HIM OF THE NEGOTIABLE INSTRUMENT HE LATER INDORSES. IN THIS SITUATION THE CONSERVATEE'S ESTATE OR THE PARTY GIVING THE REPRESENTATIVE THE GENERAL POWER TO INDORSE SHOULD BEAR THE RISK OF LOSS.

WHEN AN AGENT HAS GENERAL AUTHORITY TO INDORSE CHECKS, HIS PRINCIPAL'S RESTRICTION UPON THIS AUTHORITY, WITHOUT NOTICE TO INDORSEES, WILL NOT INVALIDATE THE AGENT'S NEGOTIATION OF A CHECK IN VIOLATION OF THE RESTRICTION. KENNEY V. NORTH CAPITOL SAVINGS BANK, 61 F.2D 521, CERT. DEN. 287 U.S. 627, 37 A.L.R. 2D 477. WE HAVE NO REASON TO BELIEVE THE SAME PRINCIPLE SHOULD NOT PERTAIN TO THE AUTHORITY OF A REPRESENTATIVE OTHER THAN AN AGENT, PARTICULARLY SINCE SECTION 3-403 OF THE UNIFORM COMMERCIAL CODE DOES NOT DISTINGUISH BETWEEN THE AUTHORITY OF AN AGENT AND THAT OF ANY OTHER REPRESENTATIVE.

INASMUCH AS THERE WAS NO NOTICE TO SUBSEQUENT HOLDERS OF ANY RESTRICTION UPON JOHN C. HOULIHAN'S GENERAL AUTHORITY TO INDORSE, WE HAVE NO BASIS FOR CONSIDERING THE INDORSEMENTS FORGERIES.

YOU SUGGEST THAT THE INDORSEMENTS BY JOHN C. HOULIHAN WERE UNAUTHORIZED BECAUSE THEY DID NOT COMPLY WITH 31 CODE OF FEDERAL REGULATIONS 360.3 (F) AND (G), WHICH PROVIDE THAT THE INDORSEMENT SHOULD BE IN THE NAME OF THE PAYEE BY THE REPRESENTATIVE WITH AN INDICATION OF HIS CAPACITY. WE ARE CERTAIN THAT THESE PARTICULAR PROCEDURAL REGULATIONS ARE NOT INTENDED TO CONTROL RIGHTS INCIDENT TO THE TRANSFER OF TREASURY CHECKS AND THEREBY DISPLACE THE LAW OF NEGOTIABLE INSTRUMENTS GENERALLY INCORPORATED INTO THE FEDERAL LAW GOVERNING TREASURY CHECKS. OQUENDO V. FEDERAL RESERVE BANK OF NEW YORK, 98 F.2D 708, CERT. DEN. 305 U.S. 656.

YOU FURTHER STATE THAT THERE IS NO JUSTIFICATION FOR THE TREASURY DEPARTMENT'S POSITION THAT THE UNITED STATES MUST BE IN A POSITION TO RECOVER FROM SUBSEQUENT INDORSERS OR THE PAYING BANK IN ORDER TO PERMIT RECOVERY BY A CLAIMANT AGAINST THE CHECK FORGERY INSURANCE FUND. BELIEVE THE TREASURY DEPARTMENT'S POSITION TO BE ONLY THAT THE UNITED STATES HAS, IN CASES OF FORGED INDORSEMENTS, A RIGHT OF ACTION AGAINST SUBSEQUENT INDORSERS OR THE PAYING BANK, UNLESS IT IS ESTOPPED BY THE ACTIONS OF ITS OFFICERS OR EMPLOYEES.

THE CLAIM RAISES THE ISSUE AS TO WHETHER THE UNITED STATES MADE PROPER PAYMENT BY MAILING THE CHECKS TO MRS. WHITLOCK'S HOME UPON REDEMPTION OF THE BONDS. SINCE THE RIGHT TO REDEEM AND RECEIVE PAYMENT IS GOVERNED BY TREASURY DEPARTMENT REGULATIONS RATHER THAN STATE LAW, THE QUESTION OF JOHN C. HOULIHAN'S AUTHORITY TO SELL OR EXCHANGE MRS. WHITLOCK'S ASSETS AS A CONSERVATOR, IN COMPLIANCE WITH THE CALIFORNIA PROBATE CODE, IS NOT CONTROLLING. FREE V. BLAND, 369 U.S. 663; YIATCHOS V. YIATCHOS, 376 U.S. 306; 37 A.L.R. 2D 1216, 1224, 1233. THE APPLICABLE REGULATIONS ARE 31 CODE OF FEDERAL REGULATIONS 315.0, ET. SEQ.

ANY LOSSES RESULTING FROM PAYMENTS MADE IN REDEMPTION OF SAVINGS BONDS ARE TO BE REPLACED OUT OF THE FUND ESTABLISHED BY THE GOVERNMENT LOSSES IN SHIPMENT ACT, AND A DECISION OF THE SECRETARY OF THE TREASURY AS TO WHETHER A LOSS OCCURRED IS FINAL AND CONCLUSIVE AND NOT SUBJECT TO REVIEW BY ANY OTHER OFFICER OF THE UNITED STATES. SEE 31 U.S.C. 757C/I) AND 40 U.S.C. 723, SUPP. II (5 U.S.C. 134B, 1964 ED.). UNDER 31 CODE OF FEDERAL REGULATIONS 322.2 A LOSS TO THE UNITED STATES MAY RESULT FROM AN ERRONEOUS (OR UNAUTHORIZED) PAYMENT IN CONNECTION WITH THE REDEMPTION OF BONDS.

SINCE THERE WAS NO FORGERY AS A BASIS FOR RELIEF UNDER 31 U.S.C. 561, ET. SEQ. AND THE DETERMINATION OF THE VALIDITY OF A BOND REDEMPTION IS OUTSIDE OUR JURISDICTION, THE CLAIM IS DENIED.