B-75424, MAY 5, 1948, 27 COMP. GEN. 674

B-75424: May 5, 1948

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CHECKS - MATERIAL ALTERATIONS - RIGHTS OF CASHING BANK A PAYEE'S ACTION IN RAISING THE AMOUNT OF A GOVERNMENT CHECK BY ERASING PARTS OF CERTAIN FIGURES AND TRACING OVER OTHERS IN PENCIL CONSTITUTES A FRAUDULENT AND MATERIAL ALTERATION OF THE CHECK AND DESTROYS ITS VALIDITY INSOFAR AS THE PAYEE IS CONCERNED AND EXTINGUISHES AS TO HIM THE GOVERNMENT'S OBLIGATION. SO THAT A BANK WHICH ACCEPTED AND CASHED SUCH A CHECK ON WHICH THE ALTERATIONS WERE SO APPARENT AS WOULD HAVE PUT AN AVERAGE PRUDENT MAN ON NOTICE OF ITS IRREGULARITY IS NOT TO BE REGARDED AS A HOLDER IN DUE COURSE OF THE CHECK AND. 1948: REFERENCE IS MADE TO YOUR LETTER OF MARCH 25. THE ABOVE-DESCRIBED CHECK WAS ISSUED AS A REFUND OF RETIREMENT DEDUCTIONS IN THE AMOUNT OF $355.02.

B-75424, MAY 5, 1948, 27 COMP. GEN. 674

CHECKS - MATERIAL ALTERATIONS - RIGHTS OF CASHING BANK A PAYEE'S ACTION IN RAISING THE AMOUNT OF A GOVERNMENT CHECK BY ERASING PARTS OF CERTAIN FIGURES AND TRACING OVER OTHERS IN PENCIL CONSTITUTES A FRAUDULENT AND MATERIAL ALTERATION OF THE CHECK AND DESTROYS ITS VALIDITY INSOFAR AS THE PAYEE IS CONCERNED AND EXTINGUISHES AS TO HIM THE GOVERNMENT'S OBLIGATION, SO THAT A BANK WHICH ACCEPTED AND CASHED SUCH A CHECK ON WHICH THE ALTERATIONS WERE SO APPARENT AS WOULD HAVE PUT AN AVERAGE PRUDENT MAN ON NOTICE OF ITS IRREGULARITY IS NOT TO BE REGARDED AS A HOLDER IN DUE COURSE OF THE CHECK AND, AS SUCH, HAS NO LEGAL RIGHT TO PAYMENT ACCORDING TO ITS ORIGINAL TENOR.

COMPTROLLER GENERAL WARREN TO THE TREASURER OF THE UNITED STATES, MAY 5, 1948:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 25, 1948, A-464-EFP, RELATIVE TO CHECK NO. 57,264,825, DATED JUNE 3, 1947, DRAWN BY PAUL D. BANNING, SYMBOL 300, TO THE ORDER OF AGNES M. BARREN.

THE ABOVE-DESCRIBED CHECK WAS ISSUED AS A REFUND OF RETIREMENT DEDUCTIONS IN THE AMOUNT OF $355.02, AND WAS SURRENDERED TO THE UNITED STATES SECRET SERVICE BY THE COMMONWEALTH BANK, DETROIT, MICHIGAN, UPON THE CHECK BEING RETURNED BY THE LOCAL BRANCH OF THE FEDERAL RESERVE BANK, BECAUSE THE AMOUNT HAD BEEN RAISED FROM $355.02 TO $555.02. AN INVESTIGATION WAS CONDUCTED BY THE SECRET SERVICE, AND ITS REPORT, DATED JULY 15, 1947, SHOWS THAT THE PAYEE, WITH FRAUDULENT INTENT, ERASED THE WHOLE OR PART OF THE INITIAL FIGURE "3" OF THE AMOUNT IN BOTH THE BODY AND MARGIN OF THE CHECK AND WROTE "5," APPARENTLY IN PENCIL, OVER IT, RAISING THE AMOUNT OF THE CHECK TO $555.02. ALSO, IN ORDER TO MAKE THE CHECK APPEAR MORE UNIFORM--- THE GREEN SURFACE TINTING HAVING BEEN DISTURBED BY THE ERASURE, DISCLOSING THE WHITE BACKGROUND--- ERASURES OF THE COLOR TINTING WERE MADE ELSEWHERE ON THE CHECK AND CERTAIN OF THE OTHER FIGURES IN THE AMOUNT WERE TRACED IN PENCIL. IT APPEARS THAT THE PAYEE NEGOTIATED THE CHECK TO THE COMMONWEALTH BANK, DETROIT, MICHIGAN, DEPOSITING $199 OF ITS AMOUNT TO HER SAVINGS ACCOUNT AT THE SAID BANK, IN WHICH THERE HAD BEEN $1 ON DEPOSIT, MAKING THE TOTAL AMOUNT TO HER CREDIT $200, AND RECEIVING THE BALANCE IN CASE. THE PAYEE CONFESSED TO THE FRAUDULENT ALTERATION OF THE CHECK, AND THE SUM OF $200 ON DEPOSIT IN THE BANK HAS BEEN RECOVERED AND TRANSMITTED TO THE COMMONWEALTH BANK, WHICH SUSTAINED THE LOSS BECAUSE OF NONPAYMENT OF THE CHECK. THE BANK NOW HAS MADE CLAIM FOR THE ORIGINAL AMOUNT OF THE CHECK AND, UNDER THE CIRCUMSTANCES, YOU REQUEST ADVICE AS TO WHETHER THE DRAWER'S ACCOUNT SHOULD BE CHARGED WITH THE ORIGINAL AMOUNT OF THE CHECK AND THAT AMOUNT CREDITED TO THE TREASURER'S RECLAMATION SUSPENSE ACCOUNT FOR THE PURPOSE OF ISSUING A CHECK IN THE AMOUNT OF $355.02 TO THE COMMONWEALTH BANK.

IT IS WELL ESTABLISHED THAT A FRAUDULENT AND MATERIAL ALTERATION OF A CHECK DESTROYS ITS VALIDITY INSOFAR AS THE PERSON WHO MADE THE ALTERATION IS CONCERNED AND EXTINGUISHES AS TO HIM THE MAKER'S OBLIGATION IT WAS INTENDED TO SATISFY. ALSO, IT HAS BEEN HELD THAT A HOLDER IN DUE COURSE OF AN ALTERED CHECK MAY ENFORCE PAYMENT ACCORDING TO ITS ORIGINAL TENOR. 3 COMP. GEN. 626. THE RULE IS THUS STATED IN SECTION 124 OF THE UNIFORM NEGOTIABLE INSTRUMENTS ACT:

WHERE A NEGOTIABLE INSTRUMENT IS MATERIALLY ALTERED WITHOUT THE ASSET OF ALL PARTIES LIABLE THEREON, IT IS AVOIDED, EXCEPT AS AGAINST A PARTY WHO HAS HIMSELF MADE, AUTHORIZED OR ASSENTED TO THE ALTERATION, AND SUBSEQUENT INDORSERS.

BUT WHEN AN INSTRUMENT HAS BEEN MATERIALLY ALTERED AND IS IN THE HANDS OF A HOLDER IN DUE COURSE NOT A PARTY TO THE ALTERATION, HE MAY ENFORCE PAYMENT THEREOF ACCORDING TO ITS ORIGINAL TENOR.

SECTION 125 OF THE SAID ACT, INSOFAR AS INVOLVED HERE, PROVIDES THAT A MATERIAL ALTERATION IS ONE WHICH CHANGES "THE SUM PAYABLE, EITHER FOR PRINCIPAL OR INTEREST * * *.'

THUS, IT IS CLEAR THAT THE ALTERATION HERE INVOLVED IS A MATERIAL ONE AND THAT THE UNITED STATES NOT HAVING MADE, AUTHORIZED OR ASSENTED TO THE ALTERATION, THE CHECK IS AVOIDED, AND, UNLESS THE COMMONWEALTH BANK--- WHICH APPEARS NOT TO BE A PARTY TO THE ALTERATION--- IS A HOLDER IN DUE COURSE OF THE CHECK, IT MAY NOT ENFORCE PAYMENT ACCORDING TO ITS ORIGINAL TOUR.

A HOLDER IN DUE COURSE IS DEFINED BY SECTION 52 OF THE NEGOTIABLE INSTRUMENTS ACT AS ONE WHO TOOK THE INSTRUMENT UNDER THE FOLLOWING CONDITIONS:

(1) THAT IT IS COMPLETE AND REGULAR UPON ITS FACE;

(2) THAT HE BECAME THE HOLDER OF IT BEFORE IT WAS OVERDUE, AND WITHOUT NOTICE THAT IT HAS BEEN PREVIOUSLY DISHONORED IF SUCH WAS THE FACT;

(3) THAT HE TOOK IT IN GOOD FAITH AND FOR VALUE;

(4) THAT AT THE TIME IT WAS NEGOTIATED TO HIM HE HAD NO NOTICE OF ANY INFIRMITY IN THE INSTRUMENT OR DEFECT IN THE TITLE OF THE PERSON NEGOTIATING IT,

THE FACTS OF RECORD AS SET FORTH ABOVE ESTABLISH THAT THE CHECK HERE IN QUESTION WAS NOT COMPLETE AND REGULAR ON ITS FACE WHEN TAKEN BY THE BANK. ALSO, UNDER THE CIRCUMSTANCES, THE CONCLUSION APPEARS WARRANTED THAT THE ALTERATIONS WERE SO APPARENT AS WOULD PUT AN AVERAGE PRUDENT MAN ON NOTICE OF THE IRREGULARITY. IT HAS BEEN HELD THAT WHERE AN ALTERATION IS APPARENT ON ITS FACT, A PURCHASER CANNOT BECOME A HOLDER IN DUE COURSE AND RECOVER ON THE INSTRUMENT ACCORDING TO ITS ORIGINAL TENOR. MECHANICS' AM. NAT. BANK V. HELMBACHER, 201 S.W. 383; PENSACOLA STATE BANK V. MELTON, 201 F. 57; ELIAS V. WHITNEY, 98 N.Y. SUPP. 667. ALSO, SEE ANNOTATION IN 171 A.L.R. 798. HENCE, IT MUST BE HELD THAT THE BANK HERE INVOLVED IS NOT A HOLDER IN DUE COURSE OF THE CHECK, AND THAT THE CHECK IS AVOIDED AS TO IT AND IT HAS NO LEGAL RIGHT TO PAYMENT ACCORDING TO ITS ORIGINAL TENOR.

THE CHECK AND FILE ARE RETURNED HEREWITH. UPON THE RETURN THEREOF TO THIS OFFICE, THE CHECK WILL BE CANCELLED.