Petition for A Writ of Certiorari — United States v. Continental-American Bank & Trust Co.

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Reasons for granting the writ............................ ll

1. The court below refused to follow the controlling de-

Rr eee err eres ee 12

2. The so-called “impostor rule” has no application to

3 ke Wyk wh awa se Bee o8 20

SB The question is important................ 0.0. c0es, 25

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CITATIONS

Cases:

Central National Bank v. National Metropolitan Bank, 31

I Sk Se ME 5 0 kg 4 5 ee PEKKA Ra Ks Wore Rea Ne KOS

Citizens’ State Bank of McLean v. Fuller, 274 S. W. 208.

_ Clearfield Trust Co. v. United States, 318 U. S. 363......

‘ Cohen v. Lincoln Savings Bank, 275 N. Y. 399......... 20,

Commonwealth v. Globe Indemnity Co., 323 Pa. 261.... 20,

Cundy v. Lindsay, 3 A. C. 459 (1878).................

+ District National Bank v. Washington Loan & Trust Co.,

UK SEMIS bs GNC N deb ASS CACORE ECA SUA ORAS NSS oes

_ Emporia National Bank v. Shotwell, 35 Kans. 360... ...

’ Floyd Acceptances, The, 7 Wall. 666..................

po ee A Se, PD Ole We MOC Ck Soke sd kas cabahtase

Kelly-Springfield Tire Co. v. United States, 110 F. 2d

823

SRSS SSKaSE

—

>

Messenger v. Anderson, 225 U. S. 436............. 10

Montgomery Garage Co. v. Manufacturers Co., 94 N. J.

Di MEE in 40 on ge kORML Cale uid eh ewe RS Reka SARE TCL a 24

National Home v. Wood, 299 U.S. 211................ 21

National Metropolitan Bank v. United States, 323 U. S.

RARE ER prea 4, 5, 12, 13, 16, 17, 20, 25

Onondaga County Savings Bank v. United States, 64 Fed.

DE: seb ie kn ns Wack emda dap s Cues buna ee Waa cae 19, 25

vo ele © aay err

Robertson v. Coleman, 141 Mass. 231.................. 24

Simpson v. Railroad Co., 43 Utah 105.................. 20

Tolman v. American National Bank, 22 R. I. 462....... 20

United States v. Chase National Bank, 252 U.S. 485... . 25

United States v. Exchange Bank of Baltimore, 270 U. S.

25

pratewt.t wee

Cases—Continued Page

United States v. First National Bank & Trust Co., 17 F.

IEE A th iecchE Coven aeetlchae nd <haunenakes 22

United States v. National Bank, Albuquerque, 131 F. 2d

985, certiorari denied, 318 U. S. 774............. 4, 5, 20, 24

United States v. National Exchange Bank of Providence,

& Fae eee 4, 5, 12, 14, 16, 18, 20, 23, 25

Utah Power ¢ Light Co. v. United States, 243 U. S. 389. . 23

Wilber National Bank v. United States, 294 U. S. 120... 23

Statute:

Act of September 2, 1914, 38 Stat. 711, Sec. 401, as

added by Act of October 6, 1917, 40 Stat. 398, 409, as

UNI, Gee WU Sy Gn 5 ov cnc e de cccaccdecse. 27

Miscellaneous :

Abel, The Impostor Payee, 1940 Wise. L. Rev. 161...... 21

ss Shiwasu be oxh wivcek ou ScN ds 21

7 I I oie ckc wad k WMUS TAR OA AMLCRS we 21

I Senge in as knee cha aah aRik uae 21

ee a es a oles aire aaw aie 17

“2. ao & than a eee 1945, 11 F. R.

Uniform Negotiable Instruments Law, Sec. 23.......... 22,

11 Univ. of Cincinnati L. Rev. 89.....................

Veterans’ Regulation 1(a), following 38 U.S.C. 739.....

5 Williston, Contracts (Rev. Ed. 1937) :

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Iuthe Supresne ort ofthe Winted States

OcrToBER TERM, 1949

No. 333

Unitep States OF AMERICA, PETITIONER

1

ConTINENTAL-AMERICAN Bank & TRUST Co., AND

MERCANTILE NaTIONAL Bank aT DALLAS

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIFTH CIRCUIT

The Solicitor General, on behalf of the United

States, prays that a writ of certiorari be issued to

review the judgment of the Court of Appeals for

the Fifth Circuit entered in the above-entitled case

on June 16, 1949.

OPINIONS BELOW

The opinion of the district court on the motion

for summary judgment (R. 26-36) is reported at

67 F. Supp. 759. Its opinion at the trial on the

merits (R. 148-156) is reported at 79 F. Supp. 490.

The opinion of the Court of Appeals for the Fifth

Circuit on the first appeal is reported at 161 F. 2d

935. Its opinion on the second appeal (R. 182-185)

is not as yet officially reported.

(1)

2 .

JURISDICTION

The judgment of the court of appeals was entered

on June 16, 1949. The jurisdiction of this Court is

invoked under the provisions of 28 U.S. C. 1254(1).

QUESTIONS PRESENTED

1, The basic question presented is whether the

United States may recover sums paid on a govern-

ment check from the presenting bank which guar-

anteed the genuineness of prior endorsements,

where the issuance of the check was procured by

fraud and the check was endorsed by the perpetra-

tor of the fraud who was not the payee named on

the face of the check and who had no authority to

sign the payee’s name. This question, in turn, in-

volves the following subsidiary questions:

2. Whether an intent may be ascribed to. the

United States to have a check payable to the order

of the person who submits a fraudulent and forged

claim to it, rather than to the order of the person

named on the face of the voucher and check who, by

law and regulation, alone would be entitled to col-

lect the asserted claim from the United States.

3. Whether the so-called ‘‘impostor rule’’ can

apply at all to a check issued by the United States.

STATUTES INVOLVED

The applicable portions of the statutes involved

are set forth in the Appendix, infra, pp. 27-28.

STATEMENT

The two actions here involved were filed by the

United States, one against the Continental-Amer-

3

ican Bank & Trust Company on April 24, 1946 (R.

8-10) and the other against the Mercantile National

Bank at Dallas on May 16, 1946 (R. 19-21), and

sought recovery against respondent banks for

breach of their guarantees of the genuineness of

prior endorsements on six government checks. The

action against Mercantile National Bank at Dallas

involved five checks totaling $5,975 (four for $25

each and one for $5,875), all made payable by the

United States as drawer-drawee to ‘‘Mrs. Beulah

Mitchell Gibbs as the unremarried widow of Ben

Gibbs, Jr., 1224 Taylor Street, Shreveport, Lou-

isiana’’ (Exhs. G-2 to G-6). These checks were en-

dorsed by someone other than the named payee

and without her authorization (R. 66-67), and were

cashed at the Continental-American Bank and

Trust Company at Shreveport. That bank for-

warded them for collection to the Mercantile Na-

tional Bank at Dallas, Texas, which bank in turn

guaranteed the payee’s endorsement and obtained

payment from the Government through the Federal

Reserve Bark of Dallas (R. 38). The action

against Continental-American Bank at Shreve-

port involved one check for $60 made payable by

the United States as drawer-drawee to ‘‘ Mrs. Beu-

Jah Mitchell Gibbs as the unremarried widow of

Ben Gibbs, Jr., 911 Milam Street, Shreveport, Loui-

siana’”’ (Exh. G-1). This check was also endorsed

by someone other than the named payee and with-

out her authorization (R. 66-67), and was cashed

at the Continental-American Bank which gave the

4

same guarantee and obtained payment from the

Government through the Federal Reserve Bank of

Dallas (R. 16).

Both defendant banks moved for summary judg-

ment (R. 10, 22) and argued, on the basis of affi-

davits, that one Bertha Smith, posing as Beulah

Mitchell Gibbs, filed a fraudulent application for

certain benefits as the unremarried widow of Ben

Gibbs, Jr., who died while in the service in World

War I; that the Government intended to ap-

prove the application of, and have the checks cashed

by, the person with whom it dealt; and that the

Shreveport bank in cashing the checks for Bertha

Smith carried out the intent of the Government

and, accordingly, there were no forgeries (R. 27,

67 F. Supp. at 760). The district court denied de-

fendants’ motions for summary judgment with an

opinion holding that, under the decisions of this

Court in National Metropolitan Bank vy. United

States, 323 U.S. 454; Clearfield Trust Co. v. United

States, 318 U. S. 363; and United States v. Na-

tional Exchange Bank of Providence, 214 U.S. 302,

the United States was entitled to recover (R. 26-30,

67 F. Supp. 759). It specifically rejected (R. 27-

28) the ‘‘impostor’’ doctrine (as applied to the

United States in United States v. National Bank,

Albuquerque, 131 F. 2d 985 (C. A. 10), certiorari

denied, 318 U. S. 774) that the United States, as

drawer-drawee, cannot hold a presenting bank

which had guaranteed prior endorsements on a

Government check made payable, as the result of a

fraudulent claim, to a named payee and then

fraudulently endorsed in the payee’s name without

5

authority. After respondents answered, the United

States moved for and was granted summary judg-

ment in each case without further opinion (R. 18,

42), apparently for the reasons set forth in the ear-

lier opinion of the district court. Respondent banks

then took the first appeal to the court below, which,

after holding that the Albuquerque Bank case and

not the Metropolitan and Exchange Bank cases

govern in cases where the United States has de-

livered its commercial paper to a fraudulent claim-

ant, reversed and remanded ‘‘for proceedings not

inconsistent’’ herewith. (R. 54, 161 F. 2d 935.)

At the trial before the district court following

the remand from the court of appeals, the evidence

disclosed the following facts: Ben Gibbs, Jr., died

while in the military service on October 27, 1918

(R. 80). He had not at that time applied for in-

surance (R. 72) but, under the prevailing statute

if he left a surviving wife, she would be entitled to

automatic insurance benefits for 240 months at

$25.00 a month as long as she remained unremar-

ried (R. 81). In 1932, a letter was received by

the Veterans Administration from Gibbs’ sister

indicating, for the first time, that he had been

married at the time of his death (R. 72-

73). In 1936, following certain letters addressed

to the Veterans Administration by a person who

stated that she was Gibbs’ widow (R. 73), affidavits

were received reciting that Ben Gibbs, Jr. had been

married on May 21, 1914, to Beulah Mitchell.2 On

1The evidence discloses that Ben Gibbs, Jr., had actually

been married to Beulah Mitchell but that Beulah Mitchell had

remarried shortly thereafter. In 1936, the actual Beulah

6

April 7, 1938, the Veterans Administration re-

ceived by mail an affidavit purportedly signed by

Mrs. Beulah Mitchell Gibbs swearing that she was

the unremarried widow of Ben Gibbs, Jr. On

April 22, 1938, a verified claim for insurance on

Form 514 (entitled Affidavit in Support of insur-

ance Claim) was received, purportedly signed by

Mrs. Beulah Mitchell Gibbs by a mark duly wit-

nessed. It stated that the claimant was Mrs.

Beulah Mitchell Gibbs, that Ben Gibbs, Jr., her

husband, died in the service on or about November

22, 1918, that she had been married once only. It

bore an attestation that claimant was known to

be the widow of Ben Gibbs, Jr., the affiants being

Henry Mitton and Carrie Robertson. (R. 77-78.)

The claim was examined in the Claims Division

of the Veterans Administration, and a decision

of law and facts signed by T. L. Bentz, a duly au-

thorized official, was entered on May 3, 1938, hold-

ing that Ben Gibbs, Jr. had died in circumstances

entitling his widow to automatic insurance, that

Mrs. Beulah Mitchell Gibbs was his unremarried

widow, and as such entitled to such insurance (Ex-

hibit G-12). After the claim was approved, it was

sent to the Finance Service of the Veterans Ad-

Mitchell Gibbs, whose name at that time was Beulah Douse,

was approached by a Shreveport man who told her he could

get her insurance if she would swear that she had not remar-

ried and would move to Shreveport until the necessary oy 987

could be put through. This she refused to do, as she had

already been advised by the local Red Cross that she was not

eligible for automatic insurance because she had remarried.

The same man approached her on a couple of subsequent occa-

sions, seeking to persuade her to participate in the fraud but

she declined so to do. Exhibits D-22, D-23.

T

ministration where it was placed on a voucher em-

bracing several other claims. The voucher, in turn,

was signed by an authorized approving officer who

certified ‘I certify that this voucher is correct, and

the payees are entitled to the amounts set opposite

their respective names ; that the amounts stated are

actually due as shown by the facts of record; that

all the relative data are stated and that this voucher

has been examined and found true and just and

is approved in the amounts chargeable to the above

appropriation(s) and/or fund(s) * * *” (Ex-

hibit G-8). The voucher was thereupon transmitted

to the Treasury Department and, in due course, a

check was drawn by an authorized disbursing of-

ficer of that Department, payable to the order of

Beulah Mitchell Gibbs, as unremarried widow of

Ben Gibbs, Jr. (Exhibit G-2). Four other gov-

ernment checks, duly vouchered in this form by

an approving officer of the Veterans Administra-

tion for the payment of $25.00 insurance claims,

were issued in the same manner (Exhibits G-3, G-4,

G-5 and G-6).

On September 2, 1938, an unsigned typewritten

letter was received by the Veterans Administration

applying for death compensation benefits in the

name of Beulah Mitchell Gibbs (R. 79). Under

the date of September 27, 1938, a verified applica-

tion for dependency benefits on Veterans Adminis-

tration’s Form 534 was executed by a person who

signed as Beulah Mitchell Gibbs, reciting substan-

tially the same facts as were set forth in Form 514,

8

with the added information that there were no

children, that claimant’s annual income from wash-

ing and ironing was $6.00 a month, that claimant

had received automatic insurance benefits, that

claimant had never remarried since the death of

the veteran and had never separated from the vet-

eran except while he was in the military service,

and had never married but once (R. 80). On No-

vember 21, 1938, there was an administrative de-

termination that the cause of death, bronchial

pneumonia, was service-connected for the purposes

of compensation or pension benefits (R. 81). A de-

cision of questions of fact and law signed by W. S.

Welsh, an authorized official of the Veterans Ad-

ministration, was then duly made, holding that

Beulah Mitchell Gibbs was entitled to the depend-

ency allowance of $30.00 per month (Exhibit G-9).

This decision of law and facts was transmitted to

the Finance Office where a voucher was prepared,

certified by an authorized approving officer, and

transmitted to the Treasury Department. A check

for $60.00, representing two months’ dependency

benefits, payable to the order of Beulah Mitchell

Gibbs as the unremarried widow of Ben Gibbs, Jr.,

was duly issued by an authorized disbursing officer

of the Treasury and forwarded to Beulah Mitchell

Gibbs at the address given in the claim (Exhibit

G-1).

A woman by the name of Bertha Smith, who had

fraudulently made these claims (R. 158-159), inter-

cepted the first check when mailed to Beulah

9

Mitchell Gibbs at the address given in the Affidavit

of Claim. In company with a notary public by the

name of W. B. Williams who had notarized her

various affidavits of claim, she proceeded to the

bank of respondent Continental-American Bank

and Trust Company, where she was identified by

Williams to the assistant cashier as the Gibbs

woman, the payee of the check (R. 114). The as-

sistant cashier relied exclusively on the identifica-

tion of the woman as Beulah Mitchell Gibbs by

W. B. Williams (R. 117, 118, 120). He made no

other investigation concerning the identification of

the woman as the payee (R. 118). Bertha Smith

was thereupon taken by the assistant cashier to the

teller’s window where the assistant cashier identi-

fied her (R. 123). The teller cashed the check ex-

clusively upon the assistant cashier’s identification

(R. 132). The check for $5,875 was thereupon

cashed in part, and part deposited to the credit of

Beulah Mitchell Gibbs. The other checks (G-1,

G-3, G-4, G-5, G-6) were subsequently cashed by

the teller upon the identification thus established

by the assistant cashier of respondent Continental-

American Bank and Trust Company (R. 133-134).

The district court found that the defendant

banks had satisfactorily proved that the applica-

tion was made by Bertha Smith, that the checks had

been delivered to her, and that she cashed them (R.

158-160). The district court also specifically found

that the officials and employees of the Veterans Ad-

ministration intended that payment be made to

10

Beulah Mitchell Gibbs and no one else (R. 158),

and that the disbursing officials of the Treasury

Department in isswing the checks likewise had that

sole intent (R. 158). But it concluded, in the light

of the opinion by the Court of Appeals on the first

appeal, that the checks were cashed by the same

party with whom the United States had dealt and

that therefore the ‘‘impostor rule’’ applied and the

defendant banks were not liable to the United

States on their guarantee of prior endorsements

(R. 159-161). Judgments were entered for defend-

ants (R. 169-170) ard the United States in its turn

appealed.

On the second appeal, the majority of the court

adopted its opinion on the first appeal as the law

of the case and expanded the views previously

expressed,” Chief Judge Hutcheson dissenting

(R. 182-186). Judge Hutcheson held that there

was nothing in the record to show that the United

States intended the checks to be cashed by Bertha

Smith or endorsed by anyone other than the named

payee, Beulah Mitchell Gibbs; that a bank cannot

voluntarily assume the burden of identifying a

payee by guaranteeing the genuineness of the en-

dorsement and then escape the consequences of the

guarantee because the Government was deceived;

and that the impostor rule, even if otherwise valid,

2 The court below apparently entertained no doubt as to its

power to disregard the law of the case, had it believed that its

prior decision was incorrect. Cf. Kelly-Springfield Tire Co. v.

United States, 110 F. 2d 823, 827 (C. A. 3). In any event, the

law of the case established by the court below is not con-

trolling here. Messenger v. Anderson, 225 U. S. 436, 444.

11

cannot be applied to Government checks of this

type.

REASONS FOR GRANTING THE WRIT

The only method of obtaining payment of gov-

ernment checks—other than by presentation to the

Treasurer of the United States—is through a Fed-

eral Reserve Bank, or branch, when the checks

have been ‘‘properly endorsed by responsible in-

corporated banks and trust companies who guaran-

tee all prior endorsements thereon.’’* Respond-

ents voluntarily availed themselves of this method

of collection and specifically guaranteed the gen-

uineness of prior endorsements made by one whom

respondent Continental-American Bank & Trust

Co., had identified and accepted as its depositor.

After it had been discovered that the endorsement

of the checks in question in the name of Beulah

Mitchell Gibbs had been by Bertha Smith, the

United States brought suit against the respondents

to recover for this breach of their voluntary guar-

anty of the genuineness of Beulah Mitchell Gibbs’

endorsement. The court below denied recovery. It

held that although the endorsement whose genuine-

ness the respondent banks voluntarily guaranteed

was not that of the named payee, the United States

was nevertheless precluded from enforcing the

guarantee because each check must be deemed to

331 C.F.R. 202.32. Federal Reserve Banks and branches

were not expected to cash Government checks and warrants

presented directly by the general public. Jbid. Substantially

identical provisions were restated in Department Circular 176

.. ~~ maa 21, 1945, 11 F.R. 102, 31 C.F.R. (1945 Supp.)

.25.

_——

12

have been intended to be payable to Bertha Smith,

the impostor who perpetrated the fraud, and not to

Beulah Mitchell Gibbs, the payee in whose name the

endorsement was made. Respondents were accord-

ingly exonerated from all liability notwithstanding

the terms of their written agreement, without

which the United States would not have paid the

checks. That holding is in plain conflict with

the decisions of this Court in National Metro-

politan Bank v. United States, 323 U. S. 454,

and United States v. National Exchange Bank of

Providence, 214 U.S. 302, in which it was held that

a cashing bank, which was under no obligation to

accept the payee’s endorsement, was absolutely

liable upon its guarantee of the genuineness of the

payee’s signature when that signature was forged.

These same cases, relied upon by the district court

in granting summary judgmer+ for the Govern-

ment (67 F. Supp. 759, 760) ,* were twice urged upon

the court below, and twice rejected. We submit

that the refusal of the court below to follow the

controlling decisions of this Court in an important

and recurring matter relating to the conduct of the

fiscal affairs of the Government, and the wholly un-

tenable ground upon which it relied to free the re-

spondent banks from liability, call for review by

this Court.

1. The court below refused to follow the con-

trolling decisions of this Court. The National

Metropolitan Bank and the Exchange Bank of

* See supra, pp. 4-5.

—

13

Providence cases, supra, stand unqualifiedly for the

proposition that, where (a) false and fraudulent

claims are made in the names of innocent persons

who have no knowledge whatsoever of the trans-

actions, (b) accounting or disbursing officers of the

Government are deceived, (c) vouchers are pre-

pared on the basis of the false claims, (d) checks

payable to the innocent persons are issued on the

basis of the vouchers, and either are delivered or

mailed to the persons who prepared or submitted

the false claims, (e) who thereafter endorse the

name of the payee :—that endorsement is a forgery

and the United States may recover from an endors-

ing bank which has guaranteed the genuineness of

the payee’s signature. The instant case falls

squarely within those holdings, as a comparison of

the three cases unquestionably demonstrates.*

‘>The facts in the Metropolitan Bank case were stated by

the Court of Appeals for the District of Columbia as follows

(142 F. 2d 474-475):

“James H. Foley was a civilian clerk in the Headquarters

office of the Paymaster of the United States Marine Corps in

Washington City. He was assigned to prepare officers’ pay

and mileage vouchers, to prepare checks in payment thereof,

to present the checks for signature by the Paymaster or other

disbursing officers duly authorized to draw checks on the

Treasury, and to deliver the signed checks to the named payees.

From time to time during a period of twenty-eight months,

beginning shortly before July 13, 1936, and ending November

14, 1938, Foley forged pay and travel mileage vouchers, to-

gether with the necessary supporting travel orders, and pre-

pared one hundred and forty-four Treasury checks for pay-

ment of the amounts of the forged vouchers and orders. In the

ordinary course he presented the checks to the Paymaster,

who signed them. All were payable to one or another of six-

teen actually existing Marine officers stationed in Washington.

None of the payees was entitled to the proceeds of the checks

or had any knowledge of the fraud. The signed checks were

returned to Foley for distribution to the several officers, but

14

Here, Bertha Smith, an illiterate woman, entered

upon a scheme, with others, to defraud the United

States. Claims were filed by her in the name of

Beulah Mitchell Gibbs setting forth facts which, if

true, established that Beulah Mitchell Gibbs was the

unremarried widow of Ben Gibbs, Jr., a deceased

veteran of World War I and thus entitled to auto-

matic insurance and dependency benefits. The real

Beulah Mitchell Gibbs, who had remarried, was not

a party to the fraud nor was she entitled to the

benefits for which claim was made. (See fn. 1,

supra, pp. 5-6.) The claims were forwarded by mail

to the Veterans Administration, where, after pass-

ing through several channels, it was determined

that Ben Gibbs had died in circumstances entitling

Foley, instead of delivering the checks, forged the signatures of

the payees, added his own name as second endorser, and

cashed or deposited them with the Anacostia Bank of Ana-

costia, District of Columbia. That bank made no investiga-

tion of the genuineness of the payees’ signatures, but took the

checks in reliance on Foley, stamped them with the endorse-

ment—‘Pay to the order of any Bank, Banker or Trust Com-

pany. Prior endorsements guaranteed,’ and transmitted them

to the National Metropolitan Bank (appellant) for collection.

The latter bank likewise so endorsed the checks, presented

them to the Treasury and received payment. It credited the

collections to the Anacostia Bank in the regular course of busi-

ness and paid over the proceeds prior to the discovery of the

forgeries in November, 1938, and the Government’s demand on

appellant of repayment in December, 1938.”

The facts in the Providence Bank case were stated by this

Court as follows (214 U.S. at 303-304):

“Upon receipt of pension vouchers, regular in form and

purporting to be executed by the pensioners named therein—

but which in fact were forgeries—the United States pension

agent at Boston drew the checks in question upon the sub-

treasury at Boston, aggregating $6,362.07, in favor of the pen-

sioners named in the vouchers, and transmitted such checks by

mail directly to the address of each pensioner as given in the

15

his unremarried widow to automatic insurance

benefits and, if dependent, to death compensation

benefits. On the basis of documentary evidence

submitted in support of the claim, findings of fact

were made that Beulah Mitchell Gibbs was his un-

remarried widow and that she was a dependent.

Vouchers were then prepared calling for the pay-

ment of the amount which would be due to Beulah

Mitchell Gibbs under the appropriate statutes and

regulations, had the facts set forth in the claims

been true. The vouchers were transmitted to the

Treasury Department. On the basis of the vouch-

ers, the disbursing officers of the Treasury Depart-

ment drew the checks in question and returned

them to the Veterans Administration which placed

them in the mail addressed to Beulah Mitchell

Gibbs at the address given in the claims. They were

either delivered to or intercepted by Bertha Smith,

who forged the signature of Beulah Mitchell Gibbs

to the checks as she had to the claims, and the

vouchers, in accordance with the provision of § 4765, Rev. Stat.

Of the persons named in the checks fifteen had died, and the

others were the widows of soldiers who had remarried, and

whose right to a pension had ceased, all the names, however,

as we have said, having been forged. With but two excep-

tions the checks were either for $24 or $36.

“The checks with the forged endorsements thereon of the

payees were cashed by the Exchange Bank, and immediately

endorsed to a national bank in Boston for collection. The

checks were presented by the collecting bank at the sub-treas-

ury of the United States in Boston. The collecting bank re-

ceived payment of the same and accounted for such payment

to the Exchange Bank.

«# * * in December, 1898, Munson, who was undergoing

imprisonment upon a sentence imposed June 22, 1898, for forg-

ing a pension check, with which presumably this case is not

concerned, admitted that he had forged the signatures of the

payees on the checks in suit.”

16

checks were presented to respondent, the Continen-

tal Bank and Trust Company, which received the

same, placed its endorsement on the back thereof,

guaranteed the genuineness of prior endorsements,

forwarded the same for payment, and, in accord-

ance with applicable regulations, received payment

therefor through the Federal Reserve Bank.

We can find no distinction of any substance be-

tween the instant case and the Metropolitan and

Providence Bank cases (fn. 5, supra, pp. 13-15.)

All involved a scheme to defraud the United States ;

all involved the filing of false claims in the names of

persons who, had the facts set forth in the claims

been correct, would be entitled to certain payments ;

in no case was the named payee entitled to the

amount claimed; in all cases the claims were for-

warded to the appropriate federal authorities who

issued checks in reliance upon the truth of the facts

set forth therein; and in all cases the checks were

either delivered to or intercepted by the person

perpetrating the fraud, who forged the names of

the payees and either cashed or deposited the

checks at a bank which guaranteed the genuine-

ness of the endorsement; and in all cases the en-

dorsing banks breached their guaranty of the gen-

uineness of prior endorsements. The checks were

all forwarded through channels to the Treasurer

of the United States, who paid them solely in re-

liance upon the guaranty of the presenting banks.°

® That the court below incorrectly summarized the facts in

the Exchange Bank and Metropolitan cases (R. 183-4) is made

clear by the statements of facts of those cases quoted in

fn. 5, supra, pp. 13-15.

a . pment

17

In the Metropolitan Bank case, as well as here,

payment was sought and obtained through Federal

Reserve Banks in accordance with the applicable

regulation (31 C.F.R. 202.32 fn. 3, supra, p. 11),

which provided that checks would be paid only

when the checks contained a guaranty by a respon-

sible presenting bank of the genuineness of prior

endorsements. That was the obligation which re-

spondents breached, and on which they should have

been held liable under this Court’s rulings.

It is implicit in the opinions below that the court

believed the loss should fall upon the United States

because its officials were negligent (R. 184). But

even assuming that Government officials carelessly

permitted themselves to be deceived, an assumption

that the record and the trial court’s findings do

mot warrant (R. 158-160), the irrelevance of that

fact has already been settled by this Court. As

the Court remarked, in the Metropolitan Bank case

(323 U. S. at 458) :

This guaranty was a protection which the

government sought not only as to checks

which were issued in due course having val-

uable consideration, but as to checks which

might have been illegally issued. That the

administrative officers failed fully to per-

form their duty is no reason why the gov-

ernment should be deprived of the advantage

of a guarantee independently made by one who

was not under compulsion of any kind to make

it. No equitable principles require that one

who, for his own reasons, guarantees a payee’s

18

signature after issuance of a check, shall be

relieved of his voluntarily assumed obligation

because others who owed the government obli-

gations had previously defaulted in their obli-

gations.’

™ The Court of Appeals’ approach was also condemned in the

Exchange Bank of Providence case where this Court stated

(214 U. S. at 318-319):

By §§ 4764 and 4765, Rev. Stat., it is required, before

a pension check shall be issued, that vouchers shall be

supplied, and the duty is cast upon the Secretary of the

Interior of making rules and regulations to establish the

identity of the pensioner. As shown by the record, the

regulations thus promulgated require vouchers to be

signed in duplicate before an officer authorized to admin-

ister anoath * * *. The pensioner is required * * *

to sign and make oath to a statement as to his identity,

his existing right to the pension and his post office

address. The officer is required to certify * * * that

the pensioner was fully identified; * * * and the

address of the pensioner is to be stated in the certificate.

These requirements are incompatible with the assump-

tion that the Government was chargeable with knowledge

of the identity, continued existence, and right to pensions,

or with the signatures of those entitled to receive pension

moneys. The requirement by the Government of proof,

for its own protection, affords no ground for the contention

that as to any action taken as the result of the furnishing

of such proof the Government is estopped as to third par-

ties from showing that the proofs furnished were false

and fraudulent and that the Government had been de-

ceived thereby. To so hold would be to say that from the

act of exerting a precaution against fraud there arose a

presumption by which the fraud could be successfully

accomplished. This would be the case if it were now held

that because by forged vouchers the Government was de-

ceived into acting third parties had a right to rely upon

the integrity of the proof and to estop the Government as

though representations as to the verity of such proof had

been made by it to such third parties. The rights, there-

fore, of the bank as the apparent acquirer of the pension

checks are to be governed by the nature and character of

the instruments and cannot be enlarged so as to relieve

the bank from the obligation of warranty implied in the

presentation of the checks and the collecting of the

amount. The subject is aptly illustrated in the opinion

19

Thus, contrary to the holding below, the decisions

of this Court make it clear that the bank, which

voluntarily accepts the endorsement, owes a duty to

the United States to make certain that the endorse-

ment is that of the named payee and that a failure

to perform that duty makes the bank liable to the

United States under its guarantee of the genuine-

ness of prior endorsements.*

by Coxe, Judge, in United States v. Onondaga County

Savings Bank, 39 Fed. Rep. 259, affirmed by the Circuit

Court of Appeals for the Second Circuit in 64 Fed. Rep.

703. [Emphasis supplied. ]

® The decision below is also in conflict with that of the Court

of Appeals for the Second Circuit in Onondaga County Savings

Bank v. United States, 64 Fed. 703 (mentioned approvingly

in the Exchange Bank opinion, 214 U.S. at 319, fn. 7, supra,

pp. 18-19). The court there stated (pp. 704-705) :

The plaintiff in error contends, however, that under

the facts proved in this case it should not be required

to respond. It is argued that the loss was the natural

and proximate result of negligence in issuing the drafts.

It appears, however, that they were issued only upon

the receipt of vouchers regular in form, apparently sub-

scribed by Alma Wood and by two witnesses, with a

certificate by a notary public that all three of them had,

on August 2, 1882, appeared personally before him, and

made oath to the truth of their respective statements,

and that he believed them to be credible persons. With

such vouchers before him, it was certainly not negligence

on the part of the pension agent to send checks for the

amount receipted for to the person inscribed on his roll

as a pensioner, at her post-office address. The govern-

ment had a right to rely upon the fact that the assistant

treasurer would pay out no money on the draft except to

Alma Wood personally, upon proof of her identity, or to

some responsible person presenting her endorsement and

guarantying its genuineness; and it is no defense to a claim

that an endorsee who has, by a forged endorsement, re-

ceived from the drawee money to which he is not entitled,

shall refund the same, to show that the same person who

deceived him into paying money on the forged endorse-

ment of the draft also induced the government to issue

the draft on a forged signature to the voucher. [Emphasis

supplied. ]

20

2. The so-called ‘‘impostor rule’’ has no applica-

tion to Government checks. The court below un-

dertook to relieve respondent banks from their

plain liability for breach of their guarantee of

prior endorsements, as established by this Court

in the Metropolitan and Exchange Bank cases, by

choosing instead to accept the decision of the Court

of Appeals for the Tenth Circuit in United States

v. National Bank, Albuquergue, 131 F. 2d

985, certiorari denied, 318 U. S. 774, which applied

the so-called ‘‘impostor rule’’ to a similar suit by

the United States. That rule, unrecognized by the

Negotiable Instruments Law, and with neither

antiquity ° nor unanimity * to recommend it, has

been adopted by a number of courts who, borrow-

ing from a principle of the law of sales (5 Willis-

ton, Contracts (Rev. Ed. 1937) sec. 1517), have

announced the proposition that where a person

fraudulently assumes the identity of a third person,

deceives the drawer of the check into believing that

he is that third person, and the drawer of the check

delivers a check made payable to the order of the

third party to the impostor, the drawer’s dominant

intent is that the check be paid to the order of the

® The impostor rule has no counterpart in the English de-

cisions. The first true impostor case relying on a supposed

intent which we have been able to find is Emporia National

Bank v. Shotwell, 35 Kans. 360 (1886).

10 District National Bank v. Washington Loan & Trust Co.,

65 F. 2d 831 (C.A. D.C.); Keel v. Wynne, 210 N.C. 426;

Citizens’ State Bank of McLean v. Fuller (Tex. App.) 274

S.W. 208; Simpson v. Railroad Co., 43 Utah 105; Tolman v.

American National Bank, 22 R.I. 462; Commonweaith v. Globe

Indemnity Co., 323 Pa. 261; cf. Cohen v. Lincoln Savings

Bank, 275 N.Y. 399, reject the impostor rule.

21

deceiving impostor rather than the third person to

whose order he has made the check payable. We

think it clear that this dubious rule has not been,

and should not be, applied to Government checks.

a. In circumstances precisely comparable to

those presented here, as we have pointed out

(supra, pp. 13-17), this Court has twice—as late as

1945—imposed liability upon the guaranteeing

bank in ‘‘impostor”’ situations, without any sug-

gestion that the normal rule of liability should not

govern.

b. Moreover, application of this so-called rule to

Government checks is logically untenable and with-

out support in the law merchant—whatever its

doubtful merits in private transactions." The rule

rests upon an assumed intention to make payment

to the impostor, rather than to the named payee,

and, accordingly, the Court of Appeals was com-

pelied to hold that it was the intention of the ‘‘ Vet-

erans Administration’ to deliver the checks to

11 See Abel, The Impostor Payee, 1940 Wisc. L. Rev. 161,

217-233, 362; 7 Brooklyn L. Rev. 220; 18 Cal. L. Rev. 693;

34 Harv. L. Rev. 76; 37 id. 149; 22 Mich. L. Rev. 61.

“In the last analysis it must be admitted that the drawer

did not intend to pay money to a confidence man or other

fraudulent person, and that he did intend the bank to

pay over his money to the bona fide business man or donee

whom he named as payee.” 8 N. Car. L. Rev. 77.

“Tf it is not the intent of all persons who draw checks to

give it [them] for a supposedly valid consideration, then busi-

ness men must be more foolish than anyone ever suspected.”

18 B. U. L. Rev. 148, 153.

12 The Veterans Administration is of course the United

States. Cf. National Home v. Wood, 299 U.S. 211, 213.

22

the very person who practiced the fraud upon it

and to have the checks paid to the order of that de-

frauder.* But the district court had specifically

found upon uncontradicted evidence that the Gov-

ernment employees and officials who drew the

checks and prepared the vouchers ‘‘intended that

payment be made to Beulah Mitchell Gibbs, the un-

remarried widow of Ben Gibbs, Jr., the deceased

veteran, and no one else’’ (R. 158). And it neces-

sarily follows from the very nature of the Govern-

ment’s fiscal operations that an assumed intention

to make payment to the impostor can have no place.

For the statutes of Congress and the regulations of

the pertinent agency, which provide the only man-

ner in which the intention of the United States can

be expressed and the only souree from which it can

be ascertained, specifically limit the payment of

claims to a definite category of people and provide

for safeguards in order to make certain that the

13 As a corollary, the court stated that there was no forgery

involved in the signing of Mrs. Gibbs’ name to the checks

(R. 183). But it seems clear that Bertha Smith’s signing of

Beulah Mitchell Gibbs’ name to the checks was just as much

forgery as her signing of the same name to the claims. Sec-

tion 23 of the Negotiable Instruments Law (infra, p. 28) pro-

vides that “When a signature is * * * made without the au-

thority of the person whose signature it purports to be, it is

wholly inoperative.” Moreover, in just such cases as this,

the fraudulent claimant, who endorsed, can be and has been

convicted of forgery. Cf. United States v. First National

Bank & Trust Co., 17 F. Supp. 611, 612 (W.D. Okla.) ; Cen-

tral National Bank v. National Metropolitan Bank, 31 App.

D.C. 391, 394. Finally, if carried to its logical result the

decision below would require the absurd holding that if Mrs.

Beulah Mitchell Gibbs had gotten hold of the checks and

endorsed them, her signature of her own name would be a

forgery because she was not the intended payee.

—

23

United States is not defrauded by persons making

false claims."* The Government officers who proc-

ess and pay these claims are persons with limited

powers whose authority is restricted to that ex-

pressly granted to them by statute or regulation.

The Floyd Acceptances, 7 Wall. 666, 677; Utah

Power & Light Co. v. United States, 243 U.S. 389,

409; Wilber National Bank v. United States, 294

U. S. 120. To ascribe to them an intent, which

rather obviously they do not, and could not, have,

is to evade this rule of strict agency by indirection.

The impostor rule, aside from its basic illogic, can-

not be applied to government checks without doing

violence to these long accepted principles.

A second ground for rejecting the ‘impostor

rule’’ in Government check cases is that it presup-

poses a physical meeting between the drawer and

the defrauder. Under the law of sales, from which

the rule is borrowed, title to goods does not pass

when they are delivered to an impostor who has

practiced his deception by mail. Cundy v. Lindsay,

3 A. C. 459 (1878). Passage of title can occur

only when there is a physical confrontation be-

tween the impostor and the vendor. Jbid. A ma-

jority of the courts which have adopted the im-

postor rule therefore apply it only where there is

14In rejecting an impostor argument in respect of a check

issued by the State of Pennsylvania, the Supreme Court of

that state (which otherwise accepts the “impostor rule”) said

in Commonwealth v. Globe Indemnity Co., 323 Pa. 261: the

intent of the Commonwealth was that recited in the check.

See also the observations of this Court in the Providence Bank

case, fn. 7, supra, pp. 18-19.

24

face to face confrontation between the impostor

and the drawer. See 22 Mich. L. Rev. 61; 15 N.

Car. L. Rev. 186; 11 Univ. of Cincinnati L. Rev.

89; 24 Va. L. Rev. 192. These courts rely upon the

proposition that, where there has been an actual

meeting, a drawer may have been mistaken as to

the sort of man he dealt with but not as to the man

himself. ‘‘The name of a person is the verbal

designation by which he is known, but the visible

presence of a person affords surer means of iden-

tifying him than his name.’’ Robertson v. Cole-

man, 141 Mass. 231, 232. Cf. Cohen v. Lincoln Sav-

ings Bank, 275 N. Y. 399; Montgomery Garage Co.

v. Manufacturers Co., 94 N. J. L. 152. Here,

as is the case with most Government claims, there

was no physical meeting between the impostor

and any government agent (R. 158). As Judge

Hutcheson aptly remarked in his dissent below, dis-

tinguishing such instances of personal dealing from

Government transactions (R. 185) :

It is a far ery, though, from this situation to

the one we have here. Here the government,

dealing through agents and by mail over great

distances and issuing countless checks to

named, but not otherwise identified, payees,

in no way undertakes to identify the payee

to the bank, in no way misleads the bank into

paying it, and guaranteeing endorsement of

the payee.

ce. Even the case of United States v. First Na-

tional Bank, Albuquerque, 131 F. 2d 985, certiorari

——

25

denied, 318 U. S. 774, relied on by the court below,

lends the decision below only indifferent support.

In that case, the Court of Appeals for the Tenth

Circuit specifically held that it was the intention of

the government official who drew the check to have

it payable to the order of the impostor and as-

sumed that there had been a face to face con-

frontation between the impostor and the disbursing

officer. (131 F. 2d at 989). Here, the intention

of the Treasury officer drawing the check was that

it should be paid to the real widow (Beulah

Mitchell Gibbs) and no one else; here also there was

no face to face confrontation between the im-

postor and any efficer of the United States, much

less the drawer of the check.

3. The question is important. The United States,

which issues tens of thousands of checks each year,

is the greatest payer of claims and the largest

drawer of checks in the country. As the recent

appellate decisions we have cited indicate, cases

frequently arise, not unnaturally, in which an im-

15 For the reasons set forth in our petition in No. 695, October

Term, 1942, we think that decision was incorrect. Further-

more, that decision, while recognizing that its opinion was

contrary to the Exchange Bank of Providence case, supra, and

Onondaga Savings Bank v. United States, 64 Fed. 703, supra,

fn. 8, p. 19, believed that the effect of those cases had been

dissipated by the decisions of this Court in United States v.

Chase National Bank, 252 U. S. 485, and United States v. Ex-

change Bank of Baltimore, 270 U. S. 527. The later decision

of this Court in the Metropolitan Bank case clearly distin-

guished the Chase Bank case as merely involving a variation

of the doctrine of Price v. Neal, 3 Burr. 1354 (as also did the

Exchange Bank of Baltimore case), and reasserted the con

ory vitality of the Providence Bank case. 323 U.S .at

7-8.

~—

26

postor succeeds in defrauding the Government and

having a check issued to him in another’s name as

payee. A further authoritative ruling by this Court

on the scope of the presenting bank’s guarantee of

prior endorsements in this situation is necessary

and desirable, and all the more so because the de-

cision below, which fails to follow this Court’s con-

trolling rulings, has no basis in principle or the

law merchant.

CONCLUSION

For the reasons stated, it is respectfully sub-

mitted that the petition herein for a writ of certi-

orari should be granted.

Puiuie B. PERLMAN,

Solicitor General.

SEPTEMBER 1949.

“

27

APPENDIX

1. The Act of September 2, 1914, 38 Stat. 711, es-

tablished a Bureau of War Risk Insurance in the

Treasury Department. Section 401 was added

by the Act of October 6, 1917, 40 Stat. 398, 409, as

an amendment to Section 2. The pertinent parts

of Section 401 as amended by the Act of Decem-

ber 24, 1919, 41 Stat. 371, 374, are:

* * * Any person in the active service

on or after the 6th day of April, 1917, and be-

fore the 11th day of November, 1918, who, while

in such service, and before the expiration of

one hundred and twenty days after October

15, 1917, or one hundred and twenty days after

entrance into or employment in the active serv-

ice, becomes or has become totally and perma-

nently disabled, or dies or has died, without

having applied for insurance, shall be deemed

to have applied for and to have been granted

insurance, payable to such person during his

life in monthly installments of $25 each; and

any person inducted into the service by a local

draft board after the 6th day of April, 1917,

and before the 11th day of November, 1918,

who, while in such service, and before being

accepted and enrolled for active military or

naval service, becomes or has become totally

and permanently disabled, or dies or has died,

without having applied for insurance, shall be

deemed to have applied for and to have been

granted insurance, payable to such person dur-

ing his life in monthly installments of $25 each.

If he shall die either before he shall have re-

ceived any of such monthly installments or

28

before he shall have received two hundred and

forty of such monthly installments, then $25

per month shall be paid to his widow from the

time of his death and during her widowhood ;

* * * Provided, however, That no more than

two hundred and forty of such monthly install-

ments, including those received by such per-

son during his total and permanent disability

shall be so paid. * * *

2. Veterans’ Regulation 1(a), promulgated by

Executive Order Number 6156, June 6, 1933, and

appearing after 38 U.S. C. 739, states in Part 1,

Paragraph IV:

The surviving widow, child or children,

and/or dependent mother or father of any de-

ceased person who died as a result of injury or

disease incurred in or aggravated by active

military or naval service as provided for in

part 1, paragraph 1 hereof, shall be entitled to

receive pension at the monthly rates specified

next below:

Widow under 50 years of age........... $30

*+* * #

3. Section 23 of the Uniform Negotiable Instru-

ments Law:

Foraep SIGNATURE.

When a signature is forged or made without

the authority of the person whose signature it

purports to be, it is wholly inoperative, and no

right to retain the instrument, or to give a dis-

charge therefor, or to enforce payment thereof

against any party thereto, can be acquired

eV

29

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.

VW UG. S. GOVERNMENT PRINTING OFFICE: 1949 e54208 30