B-54418 January 25, 1945

B-54418 January 25, 1945

Treasurer of the United States.

Dear Mr. Julian:

Consideration has been given your letter of November 27, 1945, reference FLS/2116, relative to check No. 333,936, for $73.03, drawn September 6, 1945, by J. Lentz, symbol 211-186, to the order of John L. Hancock, which was negotiated after the amount stated therein in figures had been raised by the payee from $73.03 to $78.03.

The check was altered by changing the amount shown in figures in the margin -- the correct amount written on the face of the check not having been changed -- and was negotiated from $78.03. Then the check was presented for payment by the U.S. Treasury the correct (written) amount $73.03, was paid therein. The matter was investigated by the United States Secret Service, Treasury Department; which agency, by report dated November 19, 1945, stated in part:

"The payee, John L. Hancock, was interviewed and he readily admitted altering the marginal amount of the subject check from $73.03 to $78.03 and receiving $5.00 more than the original amount called for. He further advised that his reason for altering the amount was because this amount was incorrect; his check being $5.00 short."

"The payee is a deaf and dumb mute; his wife is also deaf and dumb and she is pregnant and is expecting a child in the very near future."

"This matter was discussed with the United States Attorney for Utah and he advised that under these circumstances no criminal prosecution of the payee is contemplated by his office. The payee was taken to the office of the United States Attorney, where he was severely reprimanded."

"A United States money order, No. 541191, issued at Salt Lake City, Utah, November 19, 1945, payable to the Treasurer of the United States, Accounting Division, in the amount of $5.00 and submitted by John L. Hancock, the payee, was secured by him. This money order is enclosed herewith."

Your letter requests advice as to whether the $5 should be accepted for payment over the cashing indorser suffering the loss, or whether the payee should be required to refund the $73.03 for which the check originally was drawn. You state that it has been the practice where a payee altered a check and failed to obtain the proceeds to apply the rule of this office that the payee no longer is entitled to the amount for which it originally was drawn and referred to decision of March 13, 1924, 3 Comp. Gen. 626, as authority for the rule.

It has been held that the fraudulent alteration of a note not only destroys its validity, but extinguishes the makers obligation to pay the consideration given for the note. This, because the perpetrator of a forgery cannot acquire by his own fraudulent act a property right which otherwise he would not possess and thereby run no risk of losing anything by his wrongful act even if detected. Sherman .v Connecticut Mut. Life Ins. Co., et al., 222 mass. 159, 110 N.E. 159. The same rule is for application to altered checks. Glasscock v. First Nat. Bank, 114 Tex. 207, 266 S.W. 393, 36 A.L.R. 320.

The referred-to decision, 3 Comp. Gen. 626, held that where a negotiable 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. That is a change in the former rule of the law merchant effected by section 124 of the Uniform Negotiable Instrument Law. While a party to a material alteration cannot enforce payment, the decision of March 13, 1924, supra, does not necessarily require recovery of the original amount of the altered check which has been paid.

In the present case there is some doubt whether the check should have been paid for its original amount, because if the alternation was material the obligation of the check was discharged except in the hands of a holder in due course not a party of the alteration. Where an alteration is apparent on the face of the check, a purchaser cannot become a bona fide holder in due course and, of course, cannot recover on the instrument according to its original terms. Mechanics Am. Nat. Bank v. Helmacher, 199 Mo. App. 173, 201 S.W. 383; Pehsacola State Bank v. Melton, 210 F.R. 57.

Also, there is doubt whether the alteration in the present case constitutes a material alteration. If not, payment of the correct amount was proper. An alteration of the marginal figures of a note was not held material when the sum stated in words in the body remained unchanged. Prudential Trust Co. v. Caghlin, 249 Mass. 184, 144 N.E. 283; Peoples Bank & Trust Co. v. Klerghaupt (N.J.), 180 At. 560. In the case here, only the marginal figures were changed and the change did not deceive the drawee.

Upon the facts in the present case, you are authorized to accept the $5 refunded by the payee and pay that amount to the indorser that suffered the loss, and you will be allowed credit in your accounts for the amount paid on the check. This action is based upon circumstances peculiar to this case and dies not require any change in your procedure in altered check cases generally.

Respectfully,

Comptroller General of the United States