United States v. National City Bank of New York

• Decision Date: 30 January 1939
• Citation: 28 F. Supp. 144
• Parties: UNITED STATES v. NATIONAL CITY BANK OF NEW YORK.
• Court: U.S. District Court — Southern District of New York

28 F. Supp. 144

UNITED STATES v. NATIONAL CITY BANK OF NEW YORK.

District Court, S. D. New York.

January 30, 1939.

Lamar Hardy, U. S. Atty., of New York City (Thomas McCall, Asst. U. S. Atty., of New York City, of counsel), for the United States.

Shearmen & Sterling, of New York City (Herman E. Compter, of New York City, of counsel), for defendant.

LEIBELL, District Judge.

This is an action by the United States, as maker and drawee of a check, to recover the amount thereof from The National City Bank of New York, which endorsed the check and collected the proceeds thereof. The government contends that the endorsement of the payee, John Brown, was a forgery and that defendant is liable on its guarantee of prior endorsements. Defendant denies the forgery and pleads as a special defense the government's laches in giving notice of the forgery, which deprived defendant of an opportunity for recoupment from prior endorsers. The action was commenced on November 30, 1937. A jury trial was waived and the case was submitted on an agreed statement of facts as follows:

One, John Brown, colored (hereinafter referred to as veteran Brown), a resident of Wake Forest, North Carolina, became entitled to certain benefits conferred by Congress under the World War Adjustment Compensation Act, 38 U.S.C.A. § 591 et seq., by reason of his army service. In 1925, pursuant to said Act, he applied for an Adjusted Service Certificate. On or about June 1, 1925, the Government by its Veterans Administration addressed and sent by registered mail to "John Brown, Wake Forest, N. C." an adjusted service certificate in the face amount of $996, that being the compensation to which the said John Brown was entitled. The Post Office Department delivered the certificate to another individual, also colored, not a veteran, but residing near Wake Forest, North Carolina, bearing the same name as the veteran. This individual is hereinafter referred to as non-veteran Brown. Non-veteran Brown was not entitled to any of the benefits granted by the Act. On or about March 11, 1930, non-veteran Brown applied for a loan on the certificate using the form of a "Veteran's Note" provided for that purpose by the Veterans Administration, the loan applicant being identified and the application authenticated by a local American Legion Post official. On or about the same day non-veteran Brown presented said application for a Veterans Administration loan, together with the adjusted service certificate, to the First National Bank of Roxboro, North Carolina, and upon the strength of said application and pending the granting of the loan by the Veterans Bureau, the bank discounted his sixty-day note for $140, endorsed by the Secretary of the Local Post of the American Legion at the time. The bank and non-veteran Brown agreed that the proceeds of the Veterans Bureau's loan on his adjusted service certificate should be sent to non-veteran Brown in care of the bank and used by the bank to retire the bank's loan to him. Non-veteran Brown's application for a Veterans Administration loan together with the adjusted compensation certificate were sent by mail to the Veterans Administration.

The check in question was drawn at "Charlotte N. C. Mar. 21, 1930" by "John W. Reynar, Special Disbursing Agent, by C. M. Foil" on the Treasurer of the United States in the sum of $152.00, payable to the order of "John Brown, A-3625211, % First National Bank, Roxboro, N. C." It bore in the left hand margin an official seal over which appear the printed words "United States Veterans Bureau". Below the seal is printed "Object for which drawn: Adjusted service certificate loan". The check was received at the First National Bank, Roxboro, N. C. on March 22, 1930. The bank's cashier endorsed the name John Brown on the reverse side of the check, used $140 of the proceeds thereof to retire non-veteran Brown's note at the bank, and delivered the balance of the proceeds in cash to non-veteran Brown. It appears that the endorsement of the name "John Brown" was made by the bank's cashier with the authority, consent and approval of non-veteran Brown and the validity of the endorsement as the endorsement of non-veteran Brown is not questioned.

Said check was thereupon endorsed by the Roxboro bank with the usual stamped endorsement, making the check payable to the order of any bank, banker or trust company and guaranteeing all prior endorsements and was then transmitted on or about March 25, 1930, to the First National Bank of Durham, North Carolina, for collection. On or about March 25th, 1930, the Durham bank likewise endorsed the check with a similar stamped endorsement and forwarded the check to the defendant, National City Bank, in New York City for collection. Thereupon the defendant bank put its stamped endorsement on the check and presented the check for payment and received payment thereof through the New York Clearing House from the Federal Reserve Bank of New York on March 28th, 1930. Said check when presented and paid bore the following stamped endorsement of the defendant bank: "Received payment through New York Clearing House — prior endorsements guaranteed — The National City Bank of New York — N. C. Lenfestey, Cashier."

Thereafter the Federal Reserve Bank of New York either collected the amount of said check from the Treasurer of the United States or received reimbursement from the Treasurer of the United States of the amount paid on said check. Upon payment or prior thereto, the proceeds of said check were credited or paid by the defendant bank to the First National Bank of Durham, North Carolina, which in turn credited or paid said proceeds to the First National Bank of Roxboro, North Carolina.

All the banks above mentioned, including the defendant bank, received and endorsed the check in question and paid over its proceeds in reliance on prior endorsements and guarantees thereof, in good faith and without notice or knowledge of any infirmity in the instrument, any irregularity in the endorsement of the payee or any defect in the title of any prior party.

It is stipulated by the parties that non-veteran Brown received the proceeds of said check and caused said check to be endorsed as aforesaid without fraudulent intent and in the belief that he was a war veteran and entitled to the benefits of the Compensation Act and in the belief that he was the payee named on the check.

In April, 1931, veteran Brown again applied for an adjusted service certificate under the Act and in response to his application he was notified that certificate 2713137 in the amount of $996, effective June 1, 1925, had been mailed to him. The certificate number was the same as that on the certificate which non-veteran Brown had received in 1925. On November 3, 1931, veteran Brown signed, verified and delivered to plaintiff's Veterans Administration an affidavit stating that he had not received his certificate and had not applied for any loans thereon. The government investigated the matter and on April 14, 1932, its operative reported to the government the circumstances under which the certificate and check in question had come into the hands of non-veteran Brown. The parties have stipulated that the operative's report stated "that the indorsement on the check in the name of `John Brown' was a forgery." That part of the operative's report relates to the check representing a further and third loan that non-veteran Brown obtained from the Veterans Bureau in March 1931. I do not think that is material since the report recites the results of the operative's investigation as to all three checks. On November 18, 1935, the government made demand upon the defendant bank for reimbursement of the face amount of the check, to wit, $152, and notified the bank of the irregularity in connection with the endorsement, collection and payment of the check.

Between March 11, 1930, the date of the loan by the First National Bank of Roxboro, North Carolina, to non-veteran Brown and November 18, 1935, the date of the government's demand for reimbursement upon the defendant bank, other important events had occurred. The First National Bank of Roxboro, North Carolina, and the First National Bank of Durham, North Carolina, were closed for insolvency by the Comptroller of the Currency, the former on October 19, 1931, and the latter on January 16, 1932. Prior to November 18, 1935, the date of the government's demand, the assets of these banks had been completely liquidated and distributed to the banks' creditors. On November 18, 1935, no funds were available in either bank from which these banks could make good on their endorsements of the check in suit. On November 19, 1935, the defendant bank made demand for reimbursement upon the First National Bank of Durham, North Carolina, but the receiver of said bank refused to honor said demand for the reason that said bank and the First National Bank of Roxboro, North Carolina, had no funds available to pay the claim. The Statute of Limitations of the State of North Carolina, within which to institute an action upon a guarantee of prior indorsement, is three years after the payment of the check. Code N.C.1935, § 441.

The parties have also stipulated that at the time of the payment and collection of the check and until September 13, 1932, the First National Bank of Durham, North Carolina, maintained an account with the defendant bank in which the credit balance at all times exceeded the sum of $152. This account of the First National Bank of Durham, North Carolina, with the defendant bank was closed on September 13, 1932, at which time defendant sent its cashier's check for $2,360.28 to the First National Bank of Durham, North Carolina.

The government contends that the defendant bank is liable on the check, because of its guarantee of the prior endorsements, the first of which (non-veteran Brown's) was a forgery. The defendant bank seeks to avoid liability by asserting (1) that the...