B-173968, APR 21, 1972, 51 COMP GEN 668

B-173968, APR 21, 1972, 51 COMP GEN 668

CHECKS - PAYEES - JOINT - DIVORCE OF PAYEES THE NEGOTIATION OF JOINT INCOME TAX REFUND CHECKS ISSUED IN THE NAMES OF A DIVORCED COUPLE ON THE BASIS OF A JOINT INCOME TAX RETURN BY THE CLAIMANT'S FORMER WIFE, WITHOUT HIS KNOWLEDGE OR PERMISSION, DID NOT EXTINGUISH THE LIABILITY OF THE UNITED STATES OR PASS TITLE TO THE ENDORSING BANK, WHO THEREFOR IS SUBJECT TO RECLAMATION PROCEEDINGS, AS, ABSENT A STATUTE OR COURT DECISION TO THE CONTRARY, THE JOINT PAYEES MAY NOT BE CONSIDERED AS ONE PERSON OR ENTITY SO THAT THE ENDORSEMENTS OF BOTH WERE REQUIRED FOR NEGOTIATION OF THE CHECKS. MOREOVER, THE UNIFORM COMMERCIAL CODE REQUIRES THAT ALL JOINT PAYEES MUST ENDORSE AND DISCHARGE A NEGOTIABLE INSTRUMENT; AND WHILE THE CODE IS NOT NECESSARILY DETERMINATIVE WITH RESPECT TO GOVERNMENT CHECKS, IT SHOULD BE FOLLOWED TO THE MAXIMUM EXTENT PRACTICABLE IN THE INTEREST OF UNIFORMITY WHERE IT IS NOT INCONSISTENT WITH FEDERAL INTEREST, LAW, OR COURT DECISIONS. 50 COMP. GEN. 441 MODIFIED.

TO THE TREASURER OF THE UNITED STATES, APRIL 21, 1972:

BY LETTER OF JULY 23, 1971 (YOUR REFERENCE 1-PMC), THE SPECIAL ASSISTANT TREASURER, CHECK CLAIMS DIVISION, DEPARTMENT OF THE TREASURY REFERRED TO OUR CLAIMS DIVISION THE CLAIM OF MR. ALEX H. CHRISTIE FOR THE PROCEEDS OF TREASURY CHECKS NO. 1,699,117 (FOR $1,908.04), AND NO. 21,699,118 (FOR $3,238.67), DATED APRIL 17, 1970, SYMBOL 3123, TO THE ORDER OF ALEX H. AND GRACE CHRISTIE.

THE SUBJECT CHECKS WERE ISSUED ON THE BASIS OF A JOINT INCOME TAX RETURN FILED IN THE NAMES OF ALEX H. AND GRACE CHRISTIE, ROUTE 1, BOX 52, ARCATA, CALIFORNIA. A CLAIM DATED SEPTEMBER 22, 1970, WAS RECEIVED BY YOUR OFFICE FROM COPAYEE ALEX H. CHRISTIE, ALLEGING THAT THE CHECKS WERE RECEIVED AND NEGOTIATED BY HIS FORMER WIFE, GRACE CHRISTIE, WITHOUT HIS KNOWLEDGE OR PERMISSION. ON JANUARY 18, 1971, REFUND OF THE AMOUNTS INVOLVED WAS REQUESTED FROM THE ENDORSERS AND THE CASE REFERRED BY YOUR OFFICE TO THE UNITED STATES SECRET SERVICE FOR INVESTIGATION.

THE ENDORSERS PROTESTED YOUR OFFICE'S RECLAMATION ACTION, CONTENDING THAT MRS. CHRISTIE HAD HER HUSBAND'S PERMISSION TO SIGN THE CHECKS IN QUESTION. THE SECRET SERVICE FURNISHED YOUR OFFICE A REPORT OF THEIR INVESTIGATION FINDINGS, WHICH INCLUDED COPIES OF THE INTERLOCUTORY JUDGMENT OF DIVORCE AS WELL AS A PROPERTY SETTLEMENT AGREEMENT. ON APRIL 28, 1971, YOUR OFFICE WROTE MR. CHRISTIE DENYING HIS CLAIM, BASED ON THE PROVISIONS OF THE PROPERTY SETTLEMENT AGREEMENT, DATED MARCH 1969, WHICH READ, IN PART -

*** THAT, EXCEPT AS HEREINAFTER AND HEREIN SPECIFIED AND PROVIDED, EACH PARTY HERETO IS HEREBY RELEASED AND ABSOLVED FROM ANY AND ALL DUTIES, OBLIGATIONS AND LIABILITIES FOR THE FUTURE ACTS OF THE OTHER, AND THAT EACH OF SAID PARTIES HEREBY RELEASES THE OTHER FROM ANY AND ALL LIABILITIES, DEBTS OR OBLIGATIONS OF ANY KIND, CLASS OR CHARACTER INCURRED BY THE OTHER FROM AND AFTER THIS DATE, AND FROM ANY AND ALL CLAIMS AND DEMANDS. ***

ALSO, WE HAVE BEEN INFORMALLY ADVISED BY A REPRESENTATIVE OF YOUR OFFICE THAT ALTHOUGH NOT SO STATED IN THE APRIL 28 LETTER THE DENIAL OF MR. CHRISTIE'S CLAIM WAS BASED, IN PART, ON OUR DECISION OF DECEMBER 28, 1970, 50 COMP. GEN. 441. MR. CHRISTIE PROTESTED YOUR OFFICE'S DENIAL OF HIS CLAIM AND DENIES HE AUTHORIZED HIS FORMER WIFE TO ENDORSE THE CHECKS.

BECAUSE THE DECISION TO DENY MR. CHRISTIE'S CLAIM WAS PREMISED UPON THE EFFECT AND INTERPRETATION OF LANGUAGE INCLUDED IN THE PROPERTY SETTLEMENT AGREEMENT, THE CHECKS AND FILE WERE FORWARDED HERE BY THE SPECIAL ASSISTANT TREASURER FOR REVIEW AND DECISION CONCERNING THE MERITS OF THE CLAIM.

OUR ABOVE-CITED DECISION (50 COMP. GEN. 441) INVOLVED A CLAIM BY A WIFE FOR ONE-HALF OF THE PROCEEDS OF AN INCOME TAX REFUND CHECK (RESULTING FROM A JOINT TAX RETURN) WHICH HAD BEEN NEGOTIATED BY THE HUSBAND WHO ENDORSED HIS WIFE'S NAME ON THE CHECK WITHOUT HER AUTHORITY OR KNOWLEDGE. THE INTERNAL REVENUE SERVICE (IRS) TOOK THE POSITION THAT SINCE UNDER IRS LAWS A HUSBAND AND WIFE WHO FILE A JOINT RETURN ARE JOINTLY AND SEVERALLY LIABLE FOR THE TAX, THE HUSBAND AND WIFE JOINTLY AND SEVERALLY REPRESENT THE PERSON ENTITLED TO ANY REFUND AND THAT A REFUND OR CREDIT TO EITHER HUSBAND OR WIFE WILL EXTINGUISH THE LIABILITY OF THE UNITED STATES FOR THE REFUND. IN DENYING THE WIFE'S CLAIM WAS RELIED, IN PART, ON THE POSITION OF IRS. IN THE COURSE OF OUR DECISION WE SUPPORTED OUR POSITION BY STATING THAT PAYMENT TO ONE OF SEVERAL JOINT PAYEES ON A NEGOTIABLE INSTRUMENT DISCHARGES THE ENTIRE CLAIM.

WE HAVE CAREFULLY RECONSIDERED OUR POSITION THAT JOINT PAYEES (HUSBAND AND WIFE) OF A JOINT INCOME TAX REFUND CHECK MAY BE CONSIDERED AS ONE PERSON OR ENTITY SO THAT ENDORSEMENT OF THE CHECK BY ONE PAYEE AND PAYMENT OF THE PROCEEDS THERETO EXTINGUISHES THE LIABILITY OF THE UNITED STATES.

WE ARE NOW OF THE VIEW THAT ABSENT A STATUTE OR COURT DECISION TO THE CONTRARY, JOINT PAYEES (HUSBAND AND WIFE) OF A JOINT INCOME TAX REFUND CHECK MAY NOT BE CONSIDERED AS ONE PERSON OR ENTITY, SO THAT THE ENDORSEMENT OF BOTH IS REQUIRED ON THE CHECK, FOR THE PURPOSES OF NEGOTIATION. WE BASE THIS VIEW, IN PART, UPON CERTAIN TAX CASES WHICH INDICATE THAT A HUSBAND AND WIFE FILING A JOINT RETURN ARE NOT TREATED AS A SINGLE UNIT FOR ALL PURPOSES. SEE FOR EXAMPLE DOLAN V. COMMISSIONER, 44 T.C. 420 (1965); AND COERVER V. COMMISSIONER, 36 T.C. 252 (1961). ALSO, IN CONNECTION WITH OUR RECONSIDERATION WE NOTED THAT SECTION 3-116 OF THE UNIFORM COMMERCIAL CODE - WHICH HAS BEEN ADOPTED IN ALL STATES BUT LOUISIANA - REQUIRES THAT ALL JOINT PAYEES MUST ENDORSE AND DISCHARGE A NEGOTIABLE INSTRUMENT. WE ARE AWARE, OF COURSE, THAT THE RIGHTS AND DUTIES OF THE GOVERNMENT ON THE COMMERCIAL PAPER IT ISSUES ARE GOVERNED BY FEDERAL RATHER THAN LOCAL LAW. HOWEVER, WHILE THE UNIFORM COMMERCIAL CODE IS NOT NECESSARILY DETERMINATIVE WITH RESPECT TO GOVERNMENT CHECKS, IT IS OUR VIEW THAT THE GOVERNMENT SHOULD FOLLOW THAT CODE TO THE MAXIMUM EXTENT PRACTICABLE IN THE INTEREST OF UNIFORMITY WHERE NOT INCONSISTENT WITH FEDERAL INTEREST, LAW OR COURT DECISIONS. SEE IN THIS CONNECTION, UNITED STATES V. HEXT, 444 F.2D 804,809 (1971) WHEREIN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT, STATED THAT:

*** ALTHOUGH CLEAR FIELD TRUST INDICATED THAT THE FEDERAL LAW MERCHANT, "DEVELOPED FOR ABOUT A CENTURY UNDER THE REGIME OF SWIFT V. TYSON" WAS "A CONVENIENT SOURCE OF REFERENCE FOR FASHIONING FEDERAL RULES APPLICABLE TO THESE FEDERAL QUESTIONS," IT IS EVIDENT THAT THE PRINCIPAL FOUNT OF GENERAL COMMERCIAL LAW GOVERNING SECURED TRANSACTIONS IS NOW ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. WE PERCEIVE NO REASON WHY THE RIGHTS OF THE UNITED STATES ARISING OUT OF SECURED TRANSACTIONS PURSUANT TO THE FHA LOAN PROGRAM SHOULD BE ANY DIFFERENT THAN THOSE OF OTHER FINANCERS OF FARMING OPERATIONS UNDER THE UNIFORM COMMERCIAL CODE. WE HAVE THEREFORE DETERMINED THAT IN FASHIONING THE FEDERAL LAW THAT IS APPLICABLE TO SUITS ARISING FROM THE FHA LOAN PROGRAM WE SHALL BE GUIDED BY THE PRINCIPLES SET FORTH IN ARTICLE 9 AND OTHER RELEVANT PORTIONS OF THE UNIFORM COMMERCIAL CODE.

SUCH A COURSE MEETS THE PRINCIPAL REASON ADVANCED FOR REQUIRING A FEDERAL RULE OF DECISION IN THESE CASES, THAT OF UNIFORMITY, WHILE AT THE SAME TIME ASSURING THAT AN INDIVIDUAL STATE'S MODIFICATIONS OF THE CODE'S SCHEME CANNOT BE EMPLOYED TO DEFEAT FEDERAL RIGHTS. TAKING THIS STEP IS NOT INCONSISTENT WITH THE PRIOR DECISIONS APPLYING FEDERAL LAW TO SUITS ARISING FROM THE FHA PROGRAM SINCE, IN OUR JUDGMENT, IN EVERY CASE IN WHICH FEDERAL LAW HAS BEEN SO APPLIED *** THE SAME RESULT WOULD HAVE BEEN REACHED UNDER THE CODE. ***

CF. CLEAR FIELD TRUST COMPANY V. UNITED STATES, 318 U.S. 363 (1943); UNITED STATES V. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, 288 F. SUPP. 343 (1968), AFFIRMED 438 F.2D 1213 (1971); AND UNITED STATES V. PHILADELPHIA NATIONAL BANK, 304 F. SUPP. 955 (1969). ALSO, OUR ATTENTION HAS BEEN BROUGHT TO A NUMBER OF COURT CASES WHICH EITHER DISTINGUISH, OVERRULE OR MIGHT BE CONSIDERED AS HAVING THE EFFECT OF OVERRULING THREE OF THE COURT CASES CITED IN 50 COMP. GEN. 441, NAMELY, THE COBER, DEWEY, AND BELLO CASES. SEE FOR EXAMPLE HARRY H. WHITE LUMBER CO. V. CROCKER-CITIZENS NATIONAL BANK, 61 CAL RPTR. 381 (1967); INDIANA PLUMBING SUPPLY CO. V. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASS'N., 63 CAL RPTR. 658 (1968); GLASSER V. COLUMBIA FEDERAL SAVINGS AND LOAN ASS'N., 197 SO.2D 6 (1967); GILL EQUIPMENT COMPANY V. FREEDMAN, 158 N.E.2D 863 (1959).

ACCORDINGLY, TO THE EXTENT THAT ANYTHING SAID IN OUR DECISION OF DECEMBER 28, 1970, 50 COMP. GEN. 441, IS IN CONFLICT WITH THE FOREGOING, OR WHAT IS SET FORTH BELOW, THAT DECISION WILL NO LONGER BE FOLLOWED:

THEREFORE, INSOFAR AS THE INSTANT CASE IS CONCERNED, IT WILL BE DECIDED IN ACCORDANCE WITH DECISIONS OF OUR OFFICE RENDERED PRIOR TO DECEMBER 28, 1970. IN THOSE DECISIONS WE HAVE GENERALLY HELD THAT THE ENDORSEMENT OF THE NAMES OF BOTH PAYEES OF A CHECK BY ONE OF THEM IS INVALID AND PASSES NO TITLE TO THE ENDORSEE IN THE ABSENCE OF AUTHORITY FROM THE OTHER PAYEE. SEE B-129118, DECEMBER 4, 1956; AND B-155599, DECEMBER 11, 1964.

IN VIEW THEREOF, IT IS APPARENT THAT MRS. CHRISTIE'S ACTION IN ENDORSING HER HUSBAND'S NAME TO THE CHECKS INVOLVED HERE CONSTITUTED AN UNAUTHORIZED ENDORSEMENT AND PASSED NO TITLE TO THE BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, UNLESS SHE HAD AUTHORITY FROM HER HUSBAND TO ENDORSE. FURTHER, CONSIDERING ALL THE TERMS AND PROVISIONS OF THE PROPERTY SETTLEMENT AGREEMENT INCLUDED IN THE DIVORCE DECREE, AND PARTICULARLY PARTS D AND G OF PARAGRAPH 14 OF SUCH AGREEMENT, IT IS OUR VIEW THAT THE PROPERTY SETTLEMENT AGREEMENT WOULD NOT PRECLUDE OR BAR THE ENFORCEMENT OF ANY LIABILITY OF THE CASHING ENDORSERS ON THE CHECK. MOREOVER, THE PROPERTY SETTLEMENT DOES NOT APPEAR TO HAVE ANY DIRECT BEARING ON THE CLAIM, SINCE THE CLAIM IS ONE AGAINST THE UNITED STATES - WHICH MADE PAYMENT ON THE FORGED CHECK AND HAS NOT BEEN DISCHARGED FROM ITS OBLIGATION FOR PAYMENT ON THE INSTRUMENT - AND NOT ONE AGAINST THE CLAIMANT'S FORMER WIFE.

UNDER THE CIRCUMSTANCES THE ENDORSING BANK APPEARS LIABLE FOR THE AMOUNT OF THE CHECKS PAID OUT UNDER ITS GUARANTEE OF PRIOR ENDORSEMENTS, UNLESS, OF COURSE, IT CAN ESTABLISH MRS. CHRISTIE'S SPECIFIC AUTHORITY TO ENDORSE FOR HER FORMER HUSBAND. IN THE CIRCUMSTANCES, THE BURDEN OF PROOF IS UPON THE PARTIES ALLEGING AND RELYING ON THE PURPORTED AUTHORITY TO ENDORSE. THE SOLE EVIDENCE OF RECORD TO SUPPORT THE ALLEGATION OF SUCH AUTHORITY CONSISTS OF A LETTER CONTAINING A STATEMENT TO THE EFFECT THAT MRS. CHRISTIE INFORMED THE BANK THAT SHE HAD HER HUSBAND'S PERMISSION TO SIGN THE CHECKS. HER FORMER HUSBAND, IN EFFECT, DENIES HE GAVE HER SUCH AUTHORITY. IT SEEMS APPARENT THAT THE RECORD PRESENTED TO OUR OFFICE DOES NOT ADEQUATELY SUPPORT THE ALLEGATION OF AUTHORITY.

ACCORDINGLY, ON THE BASIS OF THE PRESENT RECORD, YOUR OFFICE SHOULD CONTINUE RECLAMATION ACTION AGAINST THE ENDORSING BANK. IF THE BANK CONTINUES TO RESIST RECLAMATION, THE MATTER SHOULD BE REFERRED TO THE DEPARTMENT OF JUSTICE FOR APPROPRIATE ACTION.

ON THE PRESENT RECORD IT IS NOT POSSIBLE FOR OUR OFFICE TO DETERMINE ENTITLEMENT TO THE PROCEEDS OF THE CHECKS, IF RECLAMATION IS SUCCESSFUL. ALTHOUGH MR. CHRISTIE EVIDENTLY PAID THE ADDITIONAL TAXES DUE FROM HIS FUNDS IN ACCORDANCE WITH THE PROPERTY SETTLEMENT AGREEMENT, THE APPORTIONMENT OF THIS TAX REFUND MAY DEPEND ON THE EXTENT THAT BOTH THE TAXABLE INCOME AND THE TAX ARE ATTRIBUTABLE TO THE HUSBAND AND WIFE INDIVIDUALLY. AS WE HAVE POINTED OUT IN OTHER DECISIONS IN THIS TYPE CASE, IF IN THE COURSE OF RECLAMATION A CLAIMANT'S FORMER WIFE MAKES REFUND OF THE AMOUNT OF THE CHECK TO THE BANK, SHE AND THE CLAIMANT SHOULD BE GIVEN APPROPRIATE ADVICE TO THE EFFECT THAT THE CHECKS REPRESENT THE AMOUNT REFUNDABLE AS AN OVERPAYMENT ON JOINT INCOME TAX RETURNS FILED BY A HUSBAND AND WIFE AND THAT NEITHER HAS ANY SEPARATE INTEREST IN THE AMOUNT THEREOF EXCEPT SUCH AS THEY MAY ELECT TO TAKE BY AGREEMENT BETWEEN THEMSELVES OR EXCEPT AS MAY BE DETERMINED BY A COURT OR BY THE INTERNAL REVENUE SERVICE. UPON SUCH A DETERMINATION, THE AMOUNT MAY BE DISBURSED IN ACCORDANCE THEREWITH. IN THE EVENT THE FORMER WIFE DOES NOT MAKE REFUND AND MR. CHRISTIE AND THE BANK AGREE TO A DIVISION, DISBURSEMENT MAY BE IN ACCORDANCE THEREWITH.

ALSO, INSOFAR AS MR. CHRISTIE'S RIGHTS ARE CONCERNED, YOU MAY WISH TO ADVISE HIM OF INTERNAL REVENUE RULING 67-431, PAGE 411, INTERNAL REVENUE CUMULATIVE BULLETIN 1967-2, WHICH INDICATES THAT THE INTERNAL REVENUE SERVICE (IRS) MAY, IF REQUESTED (PRIOR TO THE ISSUANCE OF A REFUND CHECK), ISSUE A REFUND CHECK IN THE NAME OF ONE OF THE TWO JOINT SIGNERS (HUSBAND AND WIFE) OF A TAX RETURN IF IT APPEARS THAT THE REFUND IS FOR TAXES ATTRIBUTABLE TO AND PAID BY THE ONE MAKING SUCH REQUEST. IF RECLAMATION IS SUCCESSFUL IN THE INSTANT CASE AND IRS - PURSUANT TO MR. CHRISTIE'S REQUEST - DETERMINES UNDER THE CIRCUMSTANCES INVOLVED THAT MR. CHRISTIE IS ENTITLED TO THE REFUND, IT APPEARS THAT A NEW CHECK COULD BE ISSUED WITH MR. CHRISTIE AS THE PAYEE.

OF COURSE, IF THE BANK RESISTS RECLAMATION BY YOUR OFFICE AND THE MATTER GOES TO LITIGATION, IT MIGHT BE THAT THE JUDICIAL PROCEEDINGS WILL DETERMINE ENTITLEMENT TO THE PROCEEDS OF THE CHECKS.

THE CHECKS AND YOUR FILES ARE RETURNED HEREWITH.