B-63548, APRIL 30, 1947, 26 COMP. GEN. 834

B-63548, APRIL 30, 1947, 26 COMP. GEN. 834

CHECKS - FORGERIES - RECLAMATION - ERRONEOUS CHECK DELIVERIES - NAME SIMILARITY WHERE A GOVERNMENT CHECK IS RECEIVED AND NEGOTIATED BY PERSON OTHER THAN THE INTENDED PAYEE, BUT OF THE SAME NAME, THE UNITED STATES HAS THE RIGHT TO REFUSE PAYMENT OF THE CHECK WHEN PRESENTED TO IT, OR TO RECOVER THE PROCEEDS THEREOF IF PAYMENT WAS MADE PRIOR TO DISCOVERY OF THE IMPROPER ENDORSEMENT AND NEGOTIATION, UNLESS THE GOVERNMENT IS PRECLUDED FROM SETTING UP THE FORGERY OR LACK OF AUTHORITY OF THE NEGOTIATOR TO HAVE ENDORSED THE CHECK. IN THE ABSENCE OF A DECISION BY THE FEDERAL COURTS RESPECTING THE GOVERNMENT'S LIABILITY WHERE A CHECK INTENDED FOR ONE PERSON AND MADE PAYABLE TO SUCH PERSON ERRONEOUSLY IS DELIVERED TO ANOTHER PERSON OF SAME NAME WHO IS NOT ENTITLED THERETO, IT IS NECESSARY, AS A CONDITION PRECEDENT TO THE GOVERNMENT'S LIABILITY, THAT THERE BE SHOWN NEGLIGENCE ON THE PART OF THE ADMINISTRATIVE OFFICE WHICH RESULTED IN THE ISSUANCE OF THE CHECK TO THE WRONGFUL PAYEE AND, ALSO, THAT THE BANK OR PERSON WHO CASHED THE CHECK COULD NOT, BY THE EXERCISE OF REASONABLE DILIGENCE, HAVE ASCERTAINED THAT THE WRONGFUL PAYEE DID NOT HAVE ANY RIGHT TO THE CHECK.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, APRIL 30, 1947:

THERE HAS BEEN CONSIDERED A LETTER DATED JANUARY 30, 1947, FROM THE FISCAL ASSISTANT SECRETARY OF THE TREASURY, AS FOLLOWS:

THERE HAVE RECENTLY ARISEN A FAIRLY LARGE NUMBER OF CASES WHERE CHECKS, THROUGH CONFUSION OF FILES AND OTHER ADMINISTRATIVE ERRORS, HAVE BEEN MAILED TO AND RECEIVED AND NEGOTIATED BY PERSONS OTHER THAN THE PUBLIC CREDITORS TO WHOM THE MONEY WAS OWED, BUT WHO BORE THE SAME NAMES AS THE CREDITORS, AND THE TREASURER OF THE UNITED STATES, WHO BECOMES INVOLVED IN THESE CASES BECAUSE THEY ORIGINATE UPON RECEIPT OF CLAIMS OF FORGERY, IS DESIROUS OF HAVING HIS RESPONSIBILITIES CLARIFIED.

YOUR OFFICE HAS CONSISTENTLY RULED THAT, WHEN A GOVERNMENT DISBURSING OFFICER MAILS A CHECK TO THE ADDRESS OF AN INDIVIDUAL WHOSE NAME AND ADDRESS HAS BEEN ENTERED ON THE FACE OF THE CHECK, AND THE CHECK IS NEGOTIATED BY THE PERSON SO NAMED AS PAYEE, NEITHER SUBSEQUENT ENDORSERS BY THEIR ENDORSEMENT NOR THE TREASURER OF THE UNITED STATES BY PAYING THE CHECK INCURS ANY LIABILITY TO THE GOVERNMENT. IN THE ROSA BROWN CASE, A- 17334, DATED FEBRUARY 14, 1927, REPORTED IN 6 COMP. GEN. 532, THE FOLLOWING RULE WAS ENUNCIATED:

"THERE HAS BEEN NO FORGERY OF A GOVERNMENT CHECK WHERE THE PERSON WHO ENDORSED IT WAS NOT ENTITLED TO THE PROCEEDS BUT WHOSE NAME AND ADDRESS HAD BEEN PLACED ON THE FACE OF THE CHECK AS PAYEE THROUGH ADMINISTRATIVE ERROR; AND A BANK WHICH ENDORSES AND NEGOTIATES SUCH CHECK GUARANTEES ONLY THE GENUINENESS OF TH PAYEE'S ENDORSEMENT AND MAY NOT BE HELD RESPONSIBLE TO THE GOVERNMENT FOR THE PROCEEDS OF THE CHECK BECAUSE OF THE ADMINISTRATIVE ERROR.'

SUBSEQUENT DECISIONS INVOLVING SIMILAR FACTUAL SITUATIONS REITERATED THE RULE SET FORTH IN THE ROSA BROWN CASE. SEE DECISIONS A-55707, DATED JUNE 8, 1934, IN THE CASE OF MRS. BESSIE MILLER; AND A-61975, DATED JUNE 1, 1935, IN THE CASE OF J. E. SHEARON, AMONG OTHERS. IN DECISIONS A-59864, DATED MARCH 18, 1935, IN THE CASE OF CLIFFORD MITCHELL AND B-57707, DATED JUNE 12, 1946, IN THE CASE OF MARY MAIDA, THERE WAS HELD TO BE NO PROPER LEGAL BASIS FOR RECLAMATION BUT THE RULE SET FORTH IN THE ROSA BROWN DECISION WAS NOT REFERRED TO SPECIFICALLY.

THE SAME RESULT, THOUGH BASED UPON A DIFFERENT PRINCIPLE OF LAW, WAS REACHED IN OTHER COMPTROLLER GENERAL DECISIONS, INCLUDING SOME RECENTLY RELEASED. SEE DECISIONS A-47753, DATED MAY 25, 1933, IN THE CASE OF WILLIAM BRINKLEY; A-83156, DATED FEBRUARY 17, 1937 IN THE CASE OF DAVID LINKOUS; B-58649, DATED AUGUST 23, 1046, IN THE CASE OF BEN VAN LOH. THE PRINCIPLE ANNOUNCED IN THESE HOLDINGS IS REFLECTED IN THE FOLLOWING EXCERPT FROM THE DECISION IN THE BEN VAN LOH CASE;

"WHILE IT APPEARS THAT THE CHECK WAS NEGOTIATED WITHOUT THE GENUINE ENDORSEMENT OF THE PAYEE FOR WHOM IT WAS INTENDED, THE UNITED STATES IS STOPPED FROM RECOVERY FROM SECOND OR SUBSEQUENT ENDORSERS BECAUSE IT WAS RECEIVED AND NEGOTIATED BY THE PERSON DESCRIBED ON THE FACE OF THE CK.'

THIS PRINCIPLE HAS BEEN SUPPORTED BY VARIOUS STATE COURT DECISIONS. SEE WEISBERGER, C. V. THE BARBERTON SAVINGS BANK CO., (1911) 84 OHIO ST. 21, 95 N.E. 379; SLATTERY AND CO. V. NATIONAL CITY BANK OF NEW YORK, (1920) 114 N.Y. MISC. 48, 186 N.Y. SUPP 679; AND MARKET STREET TITLE AND TRUST CO. V. CHELTON TRUST COMPANY, (1929) 296 PA. 230, 145 ATL. 848.

HOWEVER, THERE HAVE RECENTLY BEEN RECEIVED YOUR DECISIONS B-57625, DATED MAY 21, 1946, IN THE CASE OF BERNARD B. LEVINE AND B-58490, DATED AUGUST 21, 1946, IN THE CASE OF WILLIAM H. HARRISON, WHERE THE OPPOSITE CONCLUSION WAS REACHED, WITHOUT REFERENCE TO ANY DISTINGUISHING FACTS, AND WHEREIN THE APPLICABLE RULE OF LAW WAS STATED TO BE THAT WHERE A CHECK IS RECEIVED BY A PERSON HAVING NO INTEREST THEREIN OR TITLE THERETO, HIS ENDORSEMENT OF THE PAYEE'S NAME THEREON IS SPURIOUS AND IS INEFFECTIVE TO TRANSFER ANY RIGHT, TITLE OR INTEREST THEREIN TO SUBSEQUENT ENDORSERS; AND THE FACT THAT THE PERSON NEGOTIATING THE THE CHECK BEARS THE SAME NAME AS THE PAYEE DOES NOT SERVE TO RELIEVE THE ENDORSERS FROM LIABILITY. AT THIS POINT THERE WAS CITED THE CASE OF CLEAR FIELD TRUST CO. V. UNITED STATES, 318 U.S. 363. THE FACTS IN THAT CASE ARE NOT SIMILAR TO THOSE IN THE CASES HERE UNDER CONSIDERATION AND WHETHER THE CLEAR FIELD CASE WAS CITED FOR THE PROPOSITION THAT THE VARIOUS STATE COURT DECISIONS ON THIS SUBJECT ARE NO LONGER CONTROLLING OR WAS CITED FOR SOME OTHER REASON WAS NOT STATED.

THE EFFECT OF THE LEVINE AND HARRISON DECISIONS WOLD APPEAR TO HAVE FAR REACHING IMPLICATIONS IN THAT THEY IMPOSE LIABILITY UPON THE TREASURER AND ENDORSERS OF THE CHECKS IN CASES WHRE THE PERSON DESCRIBED AS THE PAYEE WAS NOT ENTITLED TO THE CHECK. YOUR OFFICE HAS NOT TO MY KNOWLEDGE EVER HELD THAT LACK OF ENTITLEMENT IN THE PAYEE, OF ITSELF, AFFORDS ANY BASIS FOR RECLAMATION FROM ENDORSERS.

IN THE LEVINE CASE, IN WHICH YOU HELD THE ENDORSERS TO BE LIABLE, THE CHECK DID NOT BEAR AN ADDRESS, BUT THAT POINT WAS NOT MENTIONED IN THE DECISION. HOWEVER, IN OTHER DECISIONS, WHERE THERE WERE NO ADDRESSES ON THE CHECKS, SPECIFICALLY, A-83156, DATED FEBRUARY 17, 1937, IN THE CASE OF DAVID LINKOUS AND A-61975, DATED JUNE 1, 1935, IN THE CASE OF J. E. SHEARON, IT WAS HELD THAT THERE WAS NO LEGAL BASIS FOR RECLAMATION AND IN THE LATTER DECISION THE RULE LAID DOWN IN THE ROSA BROWN DECISION WAS APPLIED. IN THIS CONNECTION, YOUR RECENT DECISION IN THE CASE OF SAMPSON WILLIAMS, B-47855, DATED OCTOBER 1, 1946, CONCLUDED THAT RECOVERY FROM THE ENDORSERS OF CHECKS WHICH BORE AN ADDRESS DIFFERENT FROM THAT OF THE NEGOTIATOR WAS PROPER, BUT THAT THERE WAS NO LEGAL BASIS FOR RECLAMATION ON CHECKS ENDORSED AS DRAWN BY A PERSON OF THE SAME OR SIMILAR NAME AND ADDRESS AS THAT SHOWN ON THE CHECKS.

SINCE A REVIEW OF COMPTROLLER GENERAL DECISIONS GENERALLY IN SAME NAME CASES MAKES IT APPARENT THAT THE FACTORS INVOLVED IN THE ISSUANCE, MAILING, AND NEGOTIATION OF SUCH CHECKS ARE CONTROLLING, INSOFAR AS LIABILITY OF ENDORSERS IS CONCERNED, AND IN ORDER TO PROVIDE GUIDANCE FOR THE TREASURER IN CLAIMS NOW PENDING IN HIS OFFICE OR WHICH MAY ARISE IN THE FUTURE IN SIMILAR CASES, THERE ARE ENUMERATED BELOW FOR YOUR CONSIDERATION AND ADVICE VARIOUS HYPOTHETICAL SITUATIONS IN WHICH CHECKS ARE RECEIVED AND NEGOTIATED BY PERSONS NOT ENTITLED TO PAYMENT:

1. A CHECK IS DRAWN PAYABLE TO A AND BEARS ON ITS FACE A'S ADDRESS OF RECORD BUT, THROUGH ADMINISTRATIVE ERROR, IS MAILED TO THE ADDRESS OF B (SAME NAME).

2. A CHECK IS DRAWN PAYABLE TO A BUT, THROUGH ADMINISTRATIVE ERROR, B'S ADDRESS APPEARS ON ITS FACE AND IT IS MAILED TO B (SAME NAME).

3. A CHECK IS DRAWN PAYABLE TO A AND BEARS ON ITS FACE HIS ADDRESS OF RECORD,"1R.F.D. 2, DOEVILLE, NEW YORK" WHICH IS ALSO THE ADDRESS OF B (SAME NAME). THE ITEM IS DELIVERED IN ERROR TO B.

4. A CHECK DRAWN PAYABLE TO A, BEARING NO ADDRESS ON ITS FACE, IS MAILED IN ERROR TO B (SAME NAME).

IT SHALL BE PLEASED TO HAVE YOU ADVISE ME AS TO THE EXTENT OF LIABILITY OF THE TREASURER AND THE ENDORSERS, AND THE COURSE OF ACTION THE TREASURER SHOULD FOLLOW SHOULD THE CHECK IN EACH CASE BE NEGOTIATED BY THE RECIPIENT.

AN AUTHORITATIVE DECISION BY THIS OFFICE ON QUESTIONS ARISING OUT OF THE NEGOTIATION OF CHECKS ISSUED BY THE UNITED STATES PROPERLY MAY BE MADE ONLY ON THE BASIS OF THE ACTUAL FACTS INVOLVED IN THE NEGOTIATION OF EACH PARTICULAR CHECK AND THE LAW APPLICABLE THERETO. HENCE, WITH RESPECT TO THE FOUR HYPOTHETICAL SITUATIONS DESCRIBED IN THE AFORESAID LETTER, IT IS NOT POSSIBLE FOR THIS OFFICE TO ADVISE DEFINITELY AS TO THE EXTENT OF THE LIABILITY OF THE TREASURER OF THE UNITED STATES AND OF ENDORSERS, AND AS TO THE COURSE OF ACTION WHICH SHOULD BE TAKEN IN THE EVENT THE CHECK IN EACH CASE IS NEGOTIATED BY THE RECIPIENT. HOWEVER, THE MATTER HAS BEEN REVIEWED CAREFULLY BY THIS OFFICE AND AN ATTEMPT WILL BE MADE TO SET FORTH THE PRINCIPLES WHICH GENERALLY ARE APPLICABLE AND THE ACTION WHICH ORDINARILY SHOULD BE TAKEN, WITH THE UNDERSTANDING THAT DIFFERENT CONCLUSIONS MIGHT BE REACHED IN ACTUAL CASES DEPENDENT UPON A CONSIDERATION OF THE ENTIRE FACTUAL SITUATION THEREIN PRESENT.

IT IS ESTABLISHED BY THE RECENT DECISIONS OF THE SUPREME COURT OF THE UNITED STATES IN THE CASES OF CLEAR FIELD TRUST CO. V. UNITED STATES, 318 U.S. 363, AND NATIONAL METROPOLITAN BANK V. UNITED STATES, 323 U.S. 454, THAT THE RIGHTS AND OBLIGATIONS OF THE UNITED STATES ARISING OUT OF THE NEGOTIATION OF COMMERCIAL PAPER ISSUED BY THE GOVERNMENT ARE TO BE GOVERNED BY FEDERAL RATHER THAN LOCAL LAW. IN THE NATIONAL METROPOLITAN BANK CASE, THE COURT STATED AS FOLLOWS (PAGE 456):

ONLY RECENTLY, IN CLEAR FIELD TRUST CO. V. UNITED STATES, 318 U.S. 363, WE HAD OCCASION TO CONSIDER RIGHTS AND LIABILITIES OF THE GOVERNMENT WHICH STEM FROM THE ISSUANCE AND CIRCULATION OF ITS COMMERCIAL PAPER. OUR CONCLUSION WAS THAT LEGAL QUESTIONS INVOLVED IN CONTROVERSIES OVER SUCH COMMERCIAL PAPERS ARE TO BE RESOLVED BY THE APPLICATION OF FEDERAL RATHER THAN LOCAL LAW AND THAT IN THE ABSENCE OF AN APPLICABLE ACT OF CONGRESS, FEDERAL COURTS MUST FASHION THE GOVERNING RULES.

EXTENSIVE RESEARCH BY THIS OFFICE HAS FAILED TO DISCLOSE A CASE DECIDED BY THE FEDERAL COURTS IN RECENT YEARS IN WHICH THERE WAS PRESENT A FACTUAL SITUATION SIMILAR IN ALL DETAILS TO ANY OF THE HYPOTHETICAL CASES DESCRIBED IN YOUR LETTER. HOWEVER, THE PRINCIPLE OF THE LAW WHICH APPARENTLY IS APPLICABLE THERETO IS THAT WHICH WAS SET FORTH IN THE BERNARD B. LEVINE CASE (B-47625, MAY 21, 1946) REFERRED TO IN YOUR LETTER. AS STATED THEREIN, IT IS THE RULE BOTH AT COMMON LAW AND UNDER THE UNIFORM NEGOTIABLE INSTRUMENT ACT THAT, WHERE A SIGNATURE IT PURPORTS TO BE, IT IS WHOLLY INOPERATIVE, AND NO RIGHT TO RETAIN THE INSTRUMENT, OR TO GIVE A DISCHARGE THEREFOR, OR TO ENFORCE PAYMENT THEREOF AGAINST ANY PARTY THERETO CAN BE ACQUIRED THROUGH OR UNDER SUCH SIGNATURE UNLESS THE PARTY AGAINST WHOM IT IS SOUGHT TO ENFORCE SUCH RIGHT IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF AUTHORITY. ALSO, IT SEEMS TO BE ESTABLISHED THAT, IF A PERSON COMES INTO POSSESSION OF A CHECK TO WHICH HE IS NOT ENTITLED, EVEN THOUGH SAID CHECK IS DRAWN TO A PERSON BEARING THE IDENTICAL NAME AS THE RECIPIENT, THE ENDORSEMENT OF THE CHECK BY THE RECEIVER, IF NOT TECHNICALLY A FORGERY, IS, AT LEAST, SPURIOUS AND FALSE AND INOPERATIVE TO TRANSFER TITLE THERETO. SEE UNITED STATES V. NATIONAL CITY BANK OF NEW YORK, 28 F.1SUPP. 144, 147, AND CASES CITED; THOMAS V. FIRST NATIONAL BANK, 105 MISS. 500, 39 L.R.A. ( N.S.) 355, AND BEATTIE V. NATIONAL BANK OF ILLINOIS, 174 ILL. 571, 51 N.E. 601. HENCE, IN VIEW OF SUCH PRINCIPLES IT IS CLEAR THAT, WHERE A GOVERNMENT CHECK IS RECEIVED AND NEGOTIATED BY A PERSON OTHER THAN THE INTENDED PAYEE, EVEN THOUGH THE NAME OF THE RECIPIENT IS IDENTICAL WITH THAT OF THE INTENDED PAYEE, THE UNITED STATES HAS THE RIGHT TO REFUSE PAYMENT OF SAID CHECK WHEN PRESENTED TO IT, OR TO RECOVER THE PROCEEDS THEREOF IF PAYMENT WAS MADE PRIOR TO THE DISCOVERY OF THE IMPROPER ENDORSEMENT AND NEGOTIATION, UNLESS THE GOVERNMENT IS PRECLUDED FROM SETTING UP THE FORGERY OR LACK OF AUTHORITY OF THE NEGOTIATOR TO HAVE ENDORSED THE CHECK.

SPECIFICALLY, THE HYPOTHETICAL CASES DESCRIBED IN YOUR LETTER INVOLVE THE PROPOSITION AS TO WHETHER THE GOVERNMENT IS PRECLUDED FROM SETTING UP FORGERY OR LACK OF AUTHORITY IN CASES WHERE A CHECK INTENDED FOR ONE PERSON AND MADE PAYABLE TO SAID PERSON IS DELIVERED, THROUGH SOME ERROR, TO ANOTHER PERSON OF THE SAME NAME WHO IS NOT ENTITLED THERETO. AS STATED ABOVE, THERE HAS BEEN FOUND NO DECISION BY THE FEDERAL COURTS SETTING FORTH DEFINITELY THE EXTENT OF THE GOVERNMENT'S LIABILITY IN SUCH A SITUATION. IN THE ABSENCE OF SUCH A DECISION, THE INTEREST OF THE UNITED STATES REQUIRES THAT, BEFORE THE GOVERNMENT ACCEPTS LIABILITY ON A CHECK WHICH IS ENDORSED BY A PERSON OTHER THAN THE INTENDED PAYEE, BUT OF THE SAME NAME, THERE MUST BE SHOWN THAT THERE WAS NEGLIGENCE ON THE PART OF THE ADMINISTRATIVE OFFICE WHICH RESULTED IN THE ISSUANCE OF THE CHECK THE WRONGFUL PAYEE AND, ALSO, THAT THE BANK OR PERSON WHO CASHED THE CHECK COULD NOT, BY TH EXERCISE OF REASONABLE DILIGENCE, HAVE ASCERTAINED THAT THE WRONGFUL PAYEE DID NOT HAVE ANY RIGHT TO THE CHECK.

THE REQUIREMENT THAT, IN ADDITION TO A SHOWING OF NEGLIGENCE ON THE PART OF THE GOVERNMENT IN ISSUING THE CHECK, THE BANK OR PERSON WHO CASHED THE CHECK SHOULD ESTABLISH FREEDOM FROM ANY NEGLIGENCE IN THE MATTER, IS SUPPORTED BY AMPLE AUTHORITY IN SUCH DECISIONS AS HAVE BEEN RENDERED BY THE FEDERAL COURTS ON THE LIABILITY OF THE UNITED STATES IN CONNECTION WITH CHECKS ISSUED BY IT. IN THE CASE OF FULTON NATIONAL BANK OF ATLANTA V. UNITED STATES ( C.C.A. 5TH), 107 F.2D 86, THERE WAS INVOLVED THE CASE OF A CHECK WHICH WAS INTENDED BY THE VETERANS' ADMINISTRATION TO BE ISSUED TO ONE WILLIAM T. ALSTON, A WORLD WAR VETERAN, WHICH CHECK, HOWEVER, AS THE RESULT OF AN ADMINISTRATIVE ERROR IN FILING A CHANGE OF ADDRESS NOTIFICATION, WAS RECEIVED BY ANOTHER VETERAN WHOSE NAME WAS WILLIAM ALSTON. THE LATTER FORGED THE ENDORSEMENT OF WILLIAM T. ALSTON ON THE CHECK AND NEGOTIATED THE SAME. IN HOLDING THAT THE UNITED STATES COULD RECOVER THE AMOUNT PAID OUT ON SAID CHECK, THE COURT STATED IN ITS DECISION AS FOLLOWS (P. 88):

THIS CASE DOES NOT FALL WITHIN THE RULE APPLICABLE TO IMPOSTORS. HERE THE RECEIVER OF THE CHECK, WILLIAM ALSTON, DID NOT STAND AS AN IMPOSTOR TO SECURE THE CHECK. HE WAS NOT INTENDED AS THE ONE TO BE PAID. THE CHECK WAS NEVER INDORSED BY THE ONE TO WHOM IT WAS MADE PAYABLE AND SENT. WAS INDORSED BY WILLIAM ALSTON AND NOT WILLIAM T. ALSTON. IN MODERN COMMERCIAL BUSINESS DEALINGS THE INITIAL IS AN IMPORTANT PART OF THE NAME AND THE BANK SHOULD NOT HAVE PAID WILLIAM ALSTON, HE HAVING NO MIDDLE INITIAL. MOREOVER, THE SERIAL NUMBER OF WILLIAM TO STON,"C-1,454,554," APPEARED ON THE CHECK AND WAS THE MASTER/KEY TO THE IDENTITY OF THE PAYEE OF THE CHECK AND COULD HAVE BEEN USED BY THE BANK TO DISCOVER WHETHER OR NOT THE PERSON PRESENTING THE CHECK WAS THE ONE FOR WHOM IT WAS INTENDED. IT WAS THE DUTY OF THE BANK TO ASCERTAIN THE TRUE INDIVIDUAL AND TO PAY NO ONE ELSE. FAILING IN HIS DUTY IT MUST BE HELD LIABLE. * * * ( ITALICS SUPPLIED.) ALSO, CF. NATIONAL METROPOLITAN BANK V. UNITED STATES, SUPRA, AND WASHINGTON LOAN AND TRUST COMPANY V. UNITED STATES, 134 F.2D 49, HOLDING THAT NEGLIGENCE ON THE PART OF THE GOVERNMENT IN FAILING TO DISCOVER FRAUD BY ONE OF ITS AGENTS PRIOR TO THE NEGOTIATION OF CHECKS ISSUED AS THE RESULT OF SUCH FRAUD DOES NOT RELIEVE ENDORSERS FROM LIABILITY WHERE THE ENDORSEMENTS ON SAID CHECKS WERE FORGED.

THERE ARE VARIOUS SITUATIONS IN WHICH A LACK OF DUE CARE ON THE PART OF A CASHING ENDORSER MIGHT WARRANT THE INSTITUTION OF RECLAMATION PROCEEDINGS. FOR EXAMPLE, TAKE THE CASE OF A CHECK ISSUED FOR FINAL MUSTERING OUT PAY WHERE THE OBJECT IS PLAINLY STATED THEREON. IF SUCH A CHECK SHOULD BE RECEIVED BY AN INDIVIDUAL OF THE SAME NAME AND ADDRESS DESIGNATED ON THE FACE OF THE CHECK BUT WHO WAS 70 OR MORE YEARS OF AGE, IT SHOULD BE OBVIOUS TO THE PERSON OR BANK TO WHOM THE CHECK IS PRESENTED FOR CASHING THAT THE PRESENTER OF THE CHECK COULD NOT BE THE PERSON ENTITLED TO THE PROCEEDS THEREOF. OR, SUPPOSE A CHECK SHOULD BE ISSUED IN PAYMENT OF AN AGRICULTURAL BENEFIT, WITH SUCH OBJECT PLAINLY DISCLOSED ON ITS FACE, AND SUCH CHECK WERE PRESENTED BY A PERSON KNOWN TO THE CASHING ENDORSER AS A FACTORY OR INDUSTRIAL WORKER, ALTHOUGH HAVING THE PRECISE NAME AND ADDRESS SHOWN ON THE CHECK, THE INDIVIDUAL OR BANK WHICH CASHED THE CHECK IN SUCH CIRCUMSTANCES WOULD HAVE TO BE CONSIDERED AS HAVING DONE SO WITH CONSTRUCTIVE KNOWLEDGE THAT THE PERSON PRESENTING THE CHECK WAS NOT THE INTENDED PAYEE. AND, IN SUCH CASES, THE CIRCUMSTANCE THAT THE PAYEE AND THE RECIPIENT OF THE CHECK MIGHT RESIDE ON THE SAME RURAL ROUTE WOULD NOT PROVIDE THE ENDORSER WITH A VALID DEFENSE AGAINST RECLAMATION PROCEEDINGS. IT WILL BE RECOGNIZED THAT THE FOREGOING OR COMPARABLE FACTORS MIGHT EXIST IN ANY OF THE HYPOTHETICAL SITUATIONS ENUMERATED IN THE LETTER OF JANUARY 30, 1947.

ACCORDINGLY, YOU ARE ADVISED AS FOLLOWS WITH RESPECT TO THE ACTION WHICH SHOULD BE TAKEN IN EACH OF THE CASES DESCRIBED IN THE SAID LETTER.

AS TO THE FIRST-NAMED SITUATION, THAT IS, WHERE A CHECK BEARING THE NAME AND ADDRESS OF THE INTENDED PAYEE IS RECEIVED AND NEGOTIATED BY A PERSON OF THE SAME NAME, BUT OF A DIFFERENT ADDRESS, IT APPEARS THAT SUCH DISCREPANCY ALONE IS SUFFICIENT TO PLACE THE CASHING ENDORSER ON NOTICE THAT THE PERSON PRESENTING THE CHECK MAY NOT BE THE PAYEE DESCRIBED THEREIN; AND, IN SUCH A CASE, IF THE ENDORSER DOES NOT ESTABLISH THAT OTHER EFFORTS TO ASCERTAIN THE TRUE FACTS WERE MADE, RECLAMATION SHOULD BE EFFECTED BY THE TREASURER; OTHERWISE IT WILL BE NECESSARY TO RAISE A CHARGE IN HIS ACCOUNT.

IN THE SECOND AND FOURTH SITUATION, THAT IS, WHERE THE NAME AND ADDRESS SHOWN ON THE CHECK ARE THOSE OF THE RECIPIENT, OR WHERE THE NAME ONLY IS SHOWN THEREON, BEING THAT OF THE RECIPIENT, IF THERE ARE NO OTHER FACTORS PRESENT--- SUCH AS DESCRIBED ABOVE--- WHICH MIGHT HAVE PUT THE CASHING ENDORSER ON NOTICE OF THE DEFECT IN THE TITLE OF THE HOLDER OF THE CHECK, CREDIT WILL BE ALLOWED IN THE TREASURER'S ACCOUNT AND NO ACTION AGAINST THE ENDORSER IS REQUIRED.

IN THE THIRD SITUATION, SINCE THERE IS NOT INVOLVED ANY NEGLIGENCE BY THE ADMINISTRATIVE OFFICE IN ISSUING THAT CHECK, THE GOVERNMENT, AS DRAWER, WOULD NOT BE PRECLUDED FROM SETTING UP THE LACK OF AUTHORITY IN THE RECIPIENT TO HAVE ENDORSED THE CHECK, AND RECLAMATION SHOULD BE ATTEMPTED BY THE TREASURER.