Washington Loan & Trust Co. v. United States

• Decision Date: 01 March 1943
• Docket Number: No. 8249.,No. 8247,8248,8247,8249.
• Citation: 134 F.2d 59
• Parties: WASHINGTON LOAN & TRUST CO. v. UNITED STATES. RIGGS NAT. BANK OF WASHINGTON, D. C., v. SAME. COLUMBIA NAT. BANK OF WASHINGTON v. SAME.
• Court: U.S. Court of Appeals — District of Columbia Circuit

134 F.2d 59 (1943)

WASHINGTON LOAN & TRUST CO. v. UNITED STATES.

RIGGS NAT. BANK OF WASHINGTON, D. C., v. SAME.

COLUMBIA NAT. BANK OF WASHINGTON v. SAME.

Nos. 8247, 8248, No. 8249.

United States Court of Appeals for the District of Columbia.

Argued January 14, 1943.

Decided March 1, 1943.

Mr. George P. Hoover, of Washington, D. C., with whom Messrs. Arthur Peter, Frank J. Hogan, Nelson T. Hartson, and Walter B. Guy, all of Washington, D. C., were on the brief, for appellants.

Mr. Bernard J. Long, Assistant United States Attorney, of Washington, D. C., with whom Assistant Attorney General F. M. Shea and Mr. Edward M. Curran, United States Attorney, of Washington, D. C., were on the brief, for appellee.

Before GRONER, Chief Justice, and MILLER and VINSON, Associate Justices.

GRONER, C. J.

This is an appeal from three judgments entered by the District Court on verdicts of a jury rendered by direction of the Court in a consolidated action against three Washington banks.

On January 5, 1939, the United States brought three actions at law to recover from appellants $84,880.83 paid to them by the United States upon their presentation of 1072 United States Treasury checks bearing forged endorsements. The complaint in each case was in two counts, one alleging payment under a mistake of fact, the other payment upon guarantees by the Banks of the genuineness of prior endorsements appearing on the checks. A trial to a jury was begun, but at the close of the appellants' opening statement the Court directed a verdict for the United States.

A summary of counsel's opening statement is as follows:

In early 1933 the President issued a proclamation establishing Civilian Conservation Camps in various national and state parks throughout the United States. By executive order the Chief of Finance of the United States Army was made disbursing officer of funds allocated to the various camps. Five or six camps were established in the Shenandoah National Park in Virginia. Each of the camps, in addition to the enrollees, had a facilitating personnel, consisting of one superintendent and eight foremen. Stitely, the person responsible for the forgeries, was chief of the voucher unit of the accounts section of the National Park Service. His duty was to prepare bi-monthly payroll vouchers, containing the names of the employees in the service, present them to the disbursing officers of the Government, and receive and distribute the checks drawn by those officers to the order of the employees. From July 15, 1933, to March 31, 1937, Stitely made up fraudulent payroll vouchers for fictitious or non-existent employees of an imaginary CCC camp in the Shenandoah National Park. The fraudulent payrolls conformed to the regular payrolls, except that they were on what is called a "short form voucher". They, along with the legitimate long form vouchers, were taken by Stitely personally to the office of the Chief of Finance of the War Department each pay day. He explained to the disbursing officer that the short form voucher was used because the men whose names appeared on it were scattered around in different places in the Park and the amount of their compensation could not be determined until pay day, when the Park Superintendent came to Washington with the data. Stitely received from the Finance Officer the checks of both the persons on the legitimate and the persons on the fraudulent payrolls. The legitimate checks he delivered to the office of the Park Service; the spurious ones he retained, forged thereon the signatures of the payees, and either cashed or deposited them to his account in one of the banks. Both the legitimate and fraudulent payrolls were made up with an original and two copies. The original was sent to the General Accounting Office, one copy was retained by the Finance Office, and the second copy, which was supposed to be sent to the National Park Service, was in each instance got and destroyed by Stitely. Although the War Department had inspectors whose duty it was to inspect the camps, Stitely's imaginary camp was not discovered until April, 1937. At that time another fund, out of which Stitely had been fraudulently withdrawing money, was discovered to be short. This induced a general examination of the camp finances and led to the discovery of Stitely's forgeries. He was indicted, convicted and is now serving his sentence.

Counsel's statement also included as facts to be shown the following:

There were, at the beginning of the operation of the camps, conferences between the Park Service and the Finance Office of the Army with a view to arranging some system of accounting between the two offices, but no agreement was reached. While the payroll vouchers bore certain symbols relating to procurement, purpose number, and designation of appropriation, they bore no symbol designating the particular park in which the camp was located, with the result that there was no appropriate means of checking against particular parks either the regular payroll vouchers or the fraudulent payroll vouchers. This condition continued, without proper books being kept, until a short time before the discovery of the forgeries. Stitely knew, counsel said, that the Park Service did not keep proper records and that it was unable to balance the books and consequently was bold in his wrongdoing. Stitely was, with the knowledge of the Disbursing Officer, in the habit of taking expensive trips to Florida, but always returned to be present on pay days. Stitely was a depositor in the West End office of one of appellants, Washington Loan and Trust Company, and each of the checks sued on in the cases of the Trust Company and the Columbia Bank, another of appellants, was either cashed or deposited by him in this office of the Trust Company. Because of the proximity of this office to many Government buildings, Government checks aggregating several hundred thousand dollars were normally cashed there on pay days, the common practice being for one Government employee to present the checks of other employees, sometimes to as many as ten or fifteen. Consequently, there was nothing unusual in Stitely's conduct, nor anything that might reveal to the bank dishonesty on his part. Counsel concluded that the frauds were made easy and possible by the improper methods adopted by the United States in protecting its funds, as the result of which the banks were misled and induced to accept and pay the checks.

It is conceded, of course, that on this appeal the facts stated by counsel are to be taken as undisputed. In this view the only question is whether the court below was justified, at this juncture, and on these facts, in directing verdicts for the United States. In the argument here the Banks invoke the equitable doctrine of estoppel, based on the rule that where one of two innocent persons must suffer for a loss caused by another, the one who made it possible for that other to cause the loss should in equity and good conscience be required to bear it. On this principle the Banks insist that the statement of facts to be shown made it clear that the Government was guilty of gross negligence in the issuance of the checks and that by reason of such negligence continuing, as it did, over a period of four or five years, during all of which time the Government failed to balance its accounts or reconcile its books, or to take proper measures to detect the frauds, it is not now, upon any equitable principle, entitled to throw the loss upon the Banks.

On this question the United States concede that their rights are not different from those of an individual or corporation in like circumstances. But their position on the question of negligence in the issuance of the checks and the late discovery of the forgeries is that neither is a defense which the Banks may interpose, since equitable estoppel may be invoked only if such negligence directly and proximately affected the conduct of the Banks. And this the United States say is not the case here, because the Government, as drawer, owed no duty to the Banks with reference to the endorsements, and made no representation with respect to them, and because the Banks were under a duty to determine the genuineness of the endorsements and accepted the checks solely on their own belief in their genuineness. The correctness of this principle, in general, is established by an overwhelming majority of the cases, both State and Federal.

We need cite only a few¹ to establish the rule, which is incorporated in the Negotiable Instruments Law (D.C.Code 1940, Sec. 28-124), that when a signature is forged it is wholly inoperative and gives no right to enforce payment, unless the party against whom it is sought to enforce the right is precluded from setting up the forgery. While most of the decided cases deal with parties in the relation of drawer and drawee, which is not this case, that is no reason for the application of a different rule. See United States v. National Exchange Bank of Providence, 214 U.S. 302, 29 S.Ct. 665, 53 L.Ed. 1006.

The facts in the just cited case are, in their material aspects, the same as those here. There, as here, the checks were drawn by one agency of Government on another. There, as here, they were issued on fraudulent vouchers in regular form. There, as here, they were paid to the demanding bank upon the forged signatures of the payees. There, as here, the checks came into the possession of the banks without any express or implied representation by the Government of the verity of the endorsements or the title of the holder. There, as here, a large number of checks were involved. There, as here, the period during which the forgeries remained undiscovered covered some years. In such a state of facts the Supreme Court held that the bank, in paying the forged checks, acted wholly upon the apparent genuineness of the instruments and the responsibility of those presenting them, that the Government, in the...