A-97205, MARCH 25, 1940, 19 COMP. GEN. 819

A-97205, MARCH 25, 1940, 19 COMP. GEN. 819

CHECKS - FORGERIES - RECLAMATION - DELAY IN NOTIFYING ENDORSERS DELAY IN NOTIFYING ENDORSERS ON FORGED CHECKS, EVEN THOUGH IT BE EXTENSIVE, IS NOT SUFFICIENT PER SE TO PRECLUDE THE GOVERNMENT FROM DEMANDING RECLAMATION ON THE CHECKS. THE SUCCESSFUL PLEADING OF A DEFENSE OF DELAY IN NOTIFYING ENDORSERS ON FORGED CHECKS IS DEPENDENT UPON A SHOWING OF REAL PREJUDICE TO THE ENDORSERS' INTEREST.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE TREASURY, MARCH 25, 1940:

THERE HAS BEEN CONSIDERED YOUR LETTER OF JANUARY 26, 1940, AS FOLLOWS:

REFERENCE IS MADE TO A LETTER DATED OCTOBER 19, 1939 ( MISC.- 10781024 ET AL-1MJ), SIGNED ON YOUR BEHALF BY THE ASSISTANT CHIEF, CLAIMS DIVISION, TRANSMITTING CERTAIN CHECKS DRAWN ON THE TREASURER OF THE UNITED STATES THROUGH THE FEDERAL RESERVE BANK OF CHICAGO BY J. C. RATLIFF, DISBURSING CLERK, TREASURY DEPARTMENT, SYMBOL 84-01-52, AGGREGATING $1,245.97.

THERE APPEARS IN THE FILE A SECRET SERVICE REPORT DATED JULY 9, 1937, WHICH BEARS A STAMP INDICATING ITS RECEIPT BY YOUR RECORDS DIVISION ON JULY 15, 1937. THE REPORT FURNISHES A DESCRIPTION OF THIRTY-TWO CHECKS DRAWN TO PERSONS WHO WERE NOT WORKING DURING THE PERIODS FOR WHICH THE CHECKS WERE ISSUED. THE INVESTIGATION FURTHER INDICATES THAT ONE EVERETT R. UEBEL, FORMERLY EMPLOYED AS A SENIOR CLERK IN THE HEADQUARTERS OFFICE OF THE BUREAU OF BIOLOGICAL SURVEY AT WINONA, MINNESOTA, CONFESSED THAT HE HAD PADDED PAY ROLLS FROM DECEMBER 10, 1936, UNTIL JUNE 10, 1937, AND THAT HE ESTIMATED THAT THE CHECKS SO NEGOTIATED TOTALED $1,200.00, WHICH AMOUNT SECRET SERVICE AGENT MAZEY STATED WAS THE APPROXIMATE TOTAL OF THE THIRTY- TWO CHECKS LISTED AND THE TWO CHECKS WHICH WERE ON FILE IN THE TREASURER'S OFFICE. HOWEVER, THE FILE DOES NOT INDICATE THAT ANY ACTION WAS TAKEN BY YOUR OFFICE UPON RECEIPT OF THE FOREGOING REPORT TO NOTIFY THE ENDORSERS OF THE POSSIBLE WRONGFUL NEGOTIATION OF THE THIRTY-TWO CHECKS LISTED.

IT IS FURTHER NOTED THAT ALTHOUGH THE ACTING SECRETARY, DEPARTMENT OF AGRICULTURE, REFERRED THE FILE PERTAINING TO IRREGULARITIES IN THE ACCOUNTS OF E. R. UEBEL TO ACTING COMPTROLLER GENERAL ELLIOTT ON FEBRUARY 25, 1939, THE AMOUNTS OF THE CHECKS INVOLVED WERE NOT CHARGED TO THE TREASURER'S ACCOUNT UNTIL OCTOBER 19, 1939. IT THEREFORE APPEARS THAT THE TREASURER'S LETTER OF OCTOBER 25, 1939, CONSTITUTES THE FIRST NOTIFICATION TO THE ENDORSERS THAT THE CHECKS WERE NEGOTIATED ON FORGED ENDORSEMENTS, IN VIEW OF WHICH THEY HAVE DECLINED TO REIMBURSE THE TREASURER CONTENDING THAT THEIR RIGHTS HAVE BEEN PREJUDICED BY THE LENGTH OF TIME ELAPSING BETWEEN THE CASHING OF THE CHECKS AND THE SUBSEQUENT REQUEST FOR REFUND.

IT WILL BE RECALLED THAT THE IMPORTANCE OF PROMPT NOTIFICATION OF ENDORSERS WAS THE SUBJECT OF TREASURY LETTERS DATED DECEMBER 3, 1934, MARCH 3 AND NOVEMBER 24, 1939.

THE RECLAMATION FILE IS NOT BEFORE ME AT THIS TIME (IT HAVING BEEN FORWARDED TO THE TREASURER OF THE UNITED STATES ON OCTOBER 19, 1939, AND HAS NOT BEEN RETURNED), BUT FROM AVAILABLE RECORDS IN THIS OFFICE IT DOES APPEAR THAT THROUGH REGRETTABLE INADVERTENCE THERE WAS UNUSUAL DELAY IN NOTIFYING THE ENDORSERS OF THE FORGERY OF THE CHECKS IN QUESTION.

WITH RESPECT TO THE REPORTED REFUSAL OF THE ENDORSERS TO REIMBURSE THE TREASURER OF THE UNITED STATES UPON THE GROUND THEIR RIGHTS HAVE BEEN PREJUDICED BECAUSE OF SUCH DELAY YOUR ATTENTION IS INVITED TO THE CASE OF UNITED STATES V. NATIONAL CITY BANK OF NEW YORK, 28 FED. SUPP. 144. THAT CASE THERE WAS A DELAY OF OVER 5 YEARS FROM THE DATE THE CHECK WAS PAID TO THE DATE OF DEMAND ON THE BANK, SUCH DELAY RESULTING IN REAL PREJUDICE TO THE BANK'S INTEREST, AND THE COURT SAID---

* * * WHILE THE MERE RIGHT OF ACTION IS NOT AFFECTED BY DELAY IN DEMAND OR NOTICE, A DEFENDANT OTHERWISE LIABLE BECAUSE OF MONEY OBTAINED UPON A FORGED INSTRUMENT MAY DEFEND UPON THE GROUND THAT DELAY IN NOTICE OR DEMAND AFTER DISCOVERY OF THE FORGERY HAS WORKED AN INJURY TO HIM. WHILE THERE WAS DELAY OF APPROXIMATELY 2 YEARS IN NOTIFYING THE ENDORSERS IN THE INSTANT CASE, SUCH DELAY, PER SE, IS NOT SUFFICIENT TO PRECLUDE THE GOVERNMENT FROM DEMANDING RECLAMATION ON CHECKS THE FORGERY OF WHICH HAS BEEN DEFINITELY ESTABLISHED. BEFORE SUCH A DEFENSE MAY BE SUCCESSFULLY PLEADED THERE MUST BE A SHOWING AS TO HOW AND IN WHAT MANNER THE RIGHTS OF THE ENDORSERS WERE PREJUDICED BY THE DELAY IN NOTIFYING THE ENDORSERS.

AS TO THE LIABILITY OF THE ENDORSERS ON THEIR CONTRACT OF ENDORSEMENT, IT WAS STATED IN DECISION OF SEPTEMBER 18, 1935, 15 COMP. GEN. 218, THAT--

WITH FURTHER REFERENCE TO THE LIABILITY ARISING ON A BANK'S ENDORSEMENT, SUCH AS HERE, AND THE EFFECT OF THE FAILURE TO GIVE DUE NOTICE, ETC., THERE IS FOR NOTING WHAT THE SUPREME COURT OF THE UNITED STATES SAID IN THE CASE UNITED STATES V. NATIONAL EXCHANGE BANK, 214 U.S. 302, QUOTING FROM PAGE 320:

"UNDER THESE CONDITIONS THE WARRANTY OF GENUINENESS IMPLIED BY THE PRESENTATION AND COLLECTION OF THE CHECKS BEARING THE FORGED ENDORSEMENT HAVING BEEN BROKEN AT THE TIME THE CHECKS WERE CASHED BY THE UNITED STATES, AND THE CAUSE OF ACTION HAVING THEREFORE THEN ACCRUED, THE RIGHT TO SUE TO RECOVER BACK FROM THE EXCHANGE BANK WAS NOT CONDITIONED UPON EITHER DEMAND OR THE GIVING OF NOTICE OF THE DISCOVERY OF FACTS WHICH BY THE OPERATION OF THE LEGAL WARRANTY WERE PRESUMABLY WITHIN THE KNOWLEDGE OF THE DEFENDANT.'

SEE UNITED STATES V. CANAL BANK AND TRUST CO., 29 FED. SUPP. 605, IN WHICH THE GOVERNMENT RECOVERED FROM THE ENDORSING BANK ON A CHECK PAID BY THE TREASURER OF THE UNITED STATES IN AUGUST 1931, ALTHOUGH THE ENDORSING BANK WAS NOT NOTIFIED OF THE FORGERY UNTIL SEPTEMBER 1934. SEE, ALSO, FULTON NATIONAL BANK OF ATLANTA V. UNITED STATES, 107 F./2D) 86, WHEREIN A CONTENTION OF LACHES WAS HELD TO BE WITHOUT MERIT.

THE RECORD BEFORE ME DOES NOT ESTABLISH THAT THE DELAY IN THE PRESENT CASE WORKED TO THE PREJUDICE OF THE ENDORSERS. ACCORDINGLY, THIS OFFICE DOES NOT AUTHORIZE THE ABANDONMENT OF RECLAMATION PROCEEDINGS ON THE CHECKS IN QUESTION. THE TREASURER OF THE UNITED STATES MAY BE SO ADVISED.