United States v. First Nat. Bank of Chicago

• Decision Date: 18 November 1943
• Docket Number: No. 8274.,8274.
• Parties: UNITED STATES v. FIRST NAT. BANK OF CHICAGO.
• Court: U.S. Court of Appeals — Seventh Circuit

138 F.2d 681 (1943)

UNITED STATES v. FIRST NAT. BANK OF CHICAGO.

No. 8274.

Circuit Court of Appeals, Seventh Circuit.

November 18, 1943.

J. Albert Woll, of Chicago, Ill., Paul A. Sweeney, Department of Justice, of Washington, D.C., and Francis M. Shea, Asst. Atty. Gen. (George F. Foley and Phyllis J. Campbell, Attys., Department of Justice, both of Washington, D. C., and Austin Hall and W. Sylvester White, Jr., Asst U. S. Attys., both of Chicago, Ill., of counsel), for appellant.

C. Edward Dahlin and Ralph J. Mohan, both of Chicago, Ill., for appellee.

Before MAJOR and KERNER, Circuit Judges, and LINDLEY, District Judge.

KERNER, Circuit Judge.

Plaintiff brought this action against the First National Bank of Chicago to recover the amounts disbursed in payment of twenty-two checks. The action is based on the guaranty of prior endorsements which defendant stamped on each check. The payee's endorsement on each of these checks was forged. After the parties had entered into a stipulation of facts, plaintiff's motion for summary judgment was denied. Defendant's motion for judgment was granted. This appeal followed.

The checks in suit were pension checks¹ having the same payee, Louis Woodall, who had died on November 11, 1927, prior to the issuance of any of them. The checks were drawn on the Treasurer of the United States and were collected through plaintiff's fiscal agent, the Federal Reserve Bank of Chicago. Various agents of the plaintiff drew the checks: ten by E. E. Miller, Disbursing Clerk for the Department of the Interior between December 4, 1927, and July 4, 1930; ten by J. B. Schommer, Disbursing Clerk for the Veterans' Administration, nine between September 4, 1931 and September 4, 1932, and one on March 31, 1934; one by J. B. Schommer, Disbursing Clerk of the Division of Disbursement, Treasury Department, on April 30, 1934; and one by G. F. Allen, Chief Disbursing Officer of the Treasury Department, on July 31, 1934.

None of these checks were presented directly to defendant. They came to it for collection. On seventeen of the checks, the Reliance Bank and Trust Company, Chicago, Illinois, or its predecessor, the Reliance State Bank of Chicago, were prior endorsers. That bank closed on July 22, 1932, and all depositors and all other creditors whose claims were not filed before October 15, 1932, were barred. The Madison-Kedzie Trust and Savings Bank, Chicago, prior endorser on one check, was closed on March 16, 1933. The Liberty Trust and Savings Bank, Chicago, was a prior endorser on one check; its account with defendant was closed about December 29, 1932. John Blanton, an endorser on eight checks, died in 1934 and the balance of his estate ($754.28) was distributed as a child's award on April 27, 1934. Lulu Franklin, Charles Porter and Edna Porter, who were either prior endorsers or witnesses on a number of checks, did not possess any means to respond to any claim against them on March 27, 1935. W. H. Smith & Co., one of the endorsers on one check, was solely owned by W. H. Smith, who died in the year 1932 leaving no assets.

The Liberty Bank of Chicago was a prior endorser on two checks. It was succeeded by the Liberty National Bank, Chicago, Illinois, on August 10, 1934, and about that date, the account of the Liberty Bank of Chicago with defendant was transferred to the account of the Liberty National Bank, Chicago, Illinois. The Merchants Currency Exchange, Chicago, a prior endorser on one check, remained active.

Each of the checks bore the forged signature "X Louis Woodall" plus one or more succeeding endorsements at the time defendant received them. On various dates between December 9, 1927, and August 4, 1934, defendant collected the checks, crediting the account of the transferor, i. e., the immediate prior endorser; it did not keep the proceeds. Defendant endorsed the checks with the usual endorsement stamp, making the checks payable to the order of any bank and guaranteeing all prior endorsements. It is on this that plaintiff seeks to predicate defendant's liability. Each check, immediately after payment by the Federal Reserve Bank of Chicago, was delivered to the Treasury Department.

About December 18, 1927, an undertaker, M. J. Suerth, filed a claim, together with a death certificate, with the Veterans' Bureau for burial charges of Louis Woodall, the payee named in all of the checks involved in this action. May 14, 1928, a check in the amount of $106 drawn on the Treasurer of the United States by William H. Holmes, Disbursing Clerk for the Veterans' Bureau, was mailed to Suerth in payment of the allowance for the burial of Louis Woodall. January 19, 1928, the Awards Division, Reimbursement Section of the Veterans' Bureau received an affidavit executed by Mrs. Lulu Franklin in support of a burial claim and also an itemized bill, bearing the heading of Frank Howard & Co. Undertakers and Embalmers, directed to Mrs. Lulu Franklin for burial of L. Woodall, in the total amount of $47. This bill bore on its face the notation, "Received payment in full from Lulu Franklin," and was signed "Frank Howard."

Prior to July 21, 1930, the Bureau of Pensions, a branch of the Department of Interior, was charged with the administration of the pension laws of the United States governing benefits to veterans of the military services other than for services during the first World War. The Veterans' Bureau was established in 1921 as an independent bureau under the President; one of its functions was to pay the burial expenses of a veteran. July 21, 1930, by Executive Order No. 5398, 38 U.S.C.A. § 41 note, the Bureau of Pensions and the Veterans' Bureau were consolidated into the Veterans' Administration, and the functions, personnel and records of each were transferred to the Administration. The folder of the Veterans' Bureau relating to the death benefits of Louis Woodall was not combined with that of the Bureau of Pensions relating to Woodall until August 29, 1934, at which time it was noticed that pension checks had been improperly issued in the name of Louis Woodall since November, 1927. October 5, 1934, the matter was referred to the Treasury Department for investigation, and thence, on December 7, 1934, to the Claims Division, General Accounting Office. March 26, 1935, the General Accounting Office advised the Federal Reserve Bank of Chicago of the fact that Louis Woodall had died on November 11, 1927, and enclosed photostatic copies of the checks. Thereupon, on March 27, 1935, the Federal Reserve Bank advised defendant of the facts, and shortly thereafter made a demand upon defendant for the return of the sums paid upon the checks which was refused. This was the first notice defendant had of the forgeries or of the death of Louis Woodall.

Plaintiff contends that it was not chargeable with knowledge of Woodall's death and hence was not guilty of undue delay in notifying the defendant of the forgery.

In elaborating this contention, plaintiff argues that the Veterans' Bureau and the Pension Bureau were separate and distinct entities at the time the former received the death certificate and claims for funeral expenses, so that notice to the one was not notice to the other. Plaintiff argues further that since the United States, being a body sovereign, is similar to a corporation in that it is incapable of actual knowledge except that which its officers and agents possess, the only knowledge that it could have had was imputed knowledge, and asserts in its brief that "* * * to hold that in the conduct of its unrelated affairs the United States is chargeable with knowledge of facts disclosed in records such as those of the Social Security Board, Census Bureau, etc. would place an intolerable burden upon the Government in the successful conduct of its business. Practical considerations of public policy compel the rejection of any theory which undertakes to attribute notice to the Government solely because some bureau or department of the Government has a record some place which contains information subsequently discovered to be of relevance."

This elaboration of plaintiff's argument begs the question. The real issue is whether the matters involved here were unrelated so that on receiving the death certificate, no duty rested upon the Veterans' Bureau to communicate that fact to the Pension Bureau. Because plaintiff assumes in its argument that they were unrelated, it assumes that which it is seeking to establish. Hence its argument is not persuasive. Many of the authorities plaintiff cites are distinguishable for the same reason.

We think that the Government had knowledge of Woodall's death, and that the payment of funeral expenses and issuance of pension checks to an identical person are so related that each department handling the transactions is chargeable with the same knowledge. The actual notice of death received by the one bureau was so important to the other that there was a plain, legal duty to communicate such information to the other, and in default thereof it must be considered to have constructive notice. Woodall's death, as far as his legal relations with the Government were concerned, provided a basis for an application for reimbursement for funeral expenses, and completely and effectively terminated any right to receive a pension. When the reimbursement claim for funeral expenses was received by the Veterans' Bureau, the knowledge which that Bureau acquired should have been communicated to the Pension Bureau....