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PROVIDING FOR THE BARRING OF CERTAIN CLAIMS BY THE UNITED STATES IN CONNECTION WITH GOVERNMENT CHECKS AND WARRANTS

FEBRUARY 12, 1945.-Committed to the Committee of the Whole House on the

state of the Union and ordered to be printed

Mr. Manasco, from the Committee on Expenditures in the Executive

Departments, submitted the following

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REPORT

(To accompany H. R. 129)

The Committee on Expenditures in the Executive Departments, to whom was referred the bill (H. R. 129) providing for the barring of certain claims by the United States in connection with Government checks and warrants, having considered the same, report the bill and recommend that it pass with the following amendments:

On page 2, line 3, after the word "drawee” insert the words "in such issued checks and warrants."

On page 2, line 15, the citation should read "44 Stat. 761" instead of "44 Stat. 76”, as it now appears.

Add a new section (No. 3) to read as follows:

If any endorser, transferor or depositary, or financial agent who is liable to any of the actions mentioned in this Act shall fraudulently conceal the cause of such action from the knowledge of the United States or any agency or official of the United States entitled to bring such action, the action may be commenced at any time within two years after the United States or any agency or official of the United States who is entitled to bring the same shall discover that the United States or any agency or official of the United States had such cause of action, although such action would be otherwise barred by

the provisions of this Act. The general purpose of this legislation is to provide relief for banks, merchants, and others handling Government checks by limiting the time within which the Government may bring action to recover the proceeds of such checks by reason of a forged endorsement or unauthorized signature.

During the Seventy-eighth Congress Chairman Manasco introduced A. R. 5468 upon which reports were received from the different departments affected by the legislation. The report of the Comptroller General of the United States pointed out that the language of the bill

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was substantially identical with the language of a proposed draft of bill reported on by the Comptroller General to the Director, Bureau of the Budget. And in reporting to the Bureau of the Budget the Comptroller General had recommended that the proposed draft of bill be clarified in respect of the point of time when the limitation would begin to run. This was accomplished by inserting language providing for the limitation to run after presentation of checks and warrants "to the Treasurer of the United States” for payment. The bill (H. R. 129) differs from H. R. 5468 only in the addition of the words or other drawee" after the words "Treasurer of the United States." Accordingly, the reports rendered on H. R. 5468 were considered by the committee as thoroughly applicable to the present legislation (H. R. 129).

The need for ameliorative legislation is obvious. The Government today is issuing hitherto unheard of numbers of checks and warrants running into the hundreds of millions each year. No termination of the liability of endorsers, banks, and others now exists with respect to endorsements of such checks and warrants. By virtue of the endorsements on the checks and warrants guaranteeing or warranting the genuineness of prior endorsements the endorsers, banks and others, are confronted with the possibility of being called upon many years thereafter to refund the amounts of checks and warrants belatedly found to bear forged or unauthorized endorsements. The present legislation, in effect, bars the United States from enforcing any claim arising out of the forged or unauthorized signatures or endorsements upon or alteration of Government checks or warrants against any endorser, transferor, depositary, or financial agent unless the United States or an agency thereof has given written notice of such claim to, or has commenced court proceedings against, such endorser, transferor, depositary, or financial agent within 6 years from the presentation of the checks or warrants to the Treasurer of the United States or other drawee for payment.

If a claim is presented to the General Accounting Office on account of any check or warrant within the time limitation prescribed by section 2 of the act of June 22, 1926 (44 Stat. 761; 31 U. S. C. 122), the period within which court proceedings may be brought or written notice given is extended for an additional 180 days. The act of June 22, 1926 (31 U. S. C. 122), reads as follows:

All claims on account of any check, checks, warrant, or warrants appearing to have been paid shall be barred if not presented to the General Accoụnting Office within six years after the date of issuance of the check, checks, warrant, or warrants involved.

A similar 6-year period of limitation is applicable to claims against the United States cognizable by the Court of Claims (28 U. S. C. 262). Other illustrative cases of limitations on various claims made applicable thereto by specific statute may be found in 10 U.S. C. 866, 867; 19 U. S. C. 1621; 28 U. S. C. 599a; 31 U. S. C. 71a; 38 U. S. C. 445; 43 U. S. C. 95-98a.

The enactment of the present legislation (H. R. 129) will afford those assisting the United States in the satisfaction of its obligations by cashing Government checks, protection of a nature which the Government itself receives under existing law with respect to claims against it. Many of the liabilities from which relief is sought through the enactment of this bill arise from the comprehensive nature of the Government's right to sue on instruments bearing forged or unauthorized endorsements. In recent years large numbers of Government checks have issued to payees who after the termination of the war will return to or move to localities other than where the checks were cashed. With the passing of time such payees will become increasingly difficult to locate. Likewise, merchants and others through whom the checks passed may either no longer be available to the banks or for various other reasons may be in such position as to render whatever right of redress the banks may have against such individuals of no practical value. Hence, when called upon to make good checks found to have been negotiated upon forged or unauthorized endorsements, the full financial consequences of the refund required on such checks will fall on the banks and other permanently established institutions. When it is considered that the policy of terminating liability on claims by the Government against individuals and corporations has been established in the tax laws-26 U. S. C. 275-277-and as to sureties on the bonds of disbursing officers (usually corporate sureties receiving commensurate compensation for the risk of loss involved)-6 U. S. C. 5—the committee feel it is fair and reasonable that such policy be extended to relieve banks, merchants and others from liabilities incidentally assumed in the encashment of Government checks or warrants.

The committee decided to insert the words "in such issued checks and warrants” in the bill, as heretofore indicated, to avoid any possibility of misinterpretation as to the drawee in such a transaction as the bill covers.

The purpose of the new section-No. 3-is to exclude from the protective features of the bill those endorsers, transferors, depositaries or financial agents who fraudulently conceal facts concerning a forged or unauthorized endorsement in cases where, were such facts known by the United States, its officers or agents, a cause of action could be brought against such endorsers, transferors, depositaries or financial agents by the reason of the forgery or unauthorized endorsement. In such cases it was the opinion of the committee that unless and until the facts which were fraudulently concealed from the knowledge of the United States shall have been discovered no limitation on the time within which an action might be brought should apply but that upon discovery of such fraudulently concealed facts the United States, its officers or agents should have 2 years within which to institute proceedings. The reports of the departments on this legislation follow:

GENERAL ACCOUNTING OFFICE,

Washington, November 30, 1944. Hon. CARTER MANASCO, Chairman, Committee on Expenditures in the Executive Departments,

House of Representatives. MY DEAR MR. CHAIRMAN: Further reference is made to your letter of November 22, 1944, acknowledged November 23, requesting a report on H. R. 5468, Seventy-eighth Congress, entitled “A bill to provide for the barring of certain claims by the United States in connection with Government checks and warrants,' which bill provides as follows:

"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That no proceeding in any court shall be brought by the United States or by any agency or official of the United States

to enforce the liability of any endorser, transferor, or depositary, or financial agent, arising out of a forged or unauthorized signature or endorsement upon or alteration of

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any check, checks, warrant, or warrants issued by the Secretary of the Treasury, the Postmaster General, the Treasurer and Assistant Treasurers of the United States, or by disbursing officers and agents of the United States, unless such proceeding is commenced within six years after the presentation to the Treasurer of the United States or other drawee for payment of such check, checks, warrant, or warrants, or unless within that period written notice shall have been given by the United States or an agency thereof to such endorser, transferor, or depositary, or financial agent of a claim on account of such liability. Unless a court proceeding shall have been brought or such notice given within the period prescribed herein, any claim' against such endorser, transferor, or depositary, or financial agent on account of such liability shall be forever barred: Provided, That in connection with any claim presented to the General Accounting Office within the time limitation prescribed by section 2 of the Act of June 22, 1926 (44 Stat. 76; U. S. C., title 31, sec. 122), the period within which such a proceeding may be brought or such notice given shall be extended by an additional one hundred and eighty days, and unless such notice shall be given or a court proceeding brought within such extended period any claim against such endorser, transferor, depositary, or financial agent on account of such liability shall be forever barred.

"Sec. 2. The Comptroller General of the United States is authorized and directed to allow credit in the accounts of the Treasurer of the United States for the amount of any check, checks, warrant, or warrants with respect to which court proceedings shall have been barred pursuant to the provisions of this Act upon à showing that the barring of such proceedings did not result from any negligence on the part of the Treasurer of the United States in failing to give the notice required by the provisions of section 1 of the Act.”

Under date of June 16, 1944, this office made a report to the Director, Bureau of the Budget, on a proposed draft of bill the language of which was substantially identical with the language employed in H. R. 5468. In said report it was stated:

"The purpose and effect of the proposed legislation are set forth in the copy of explanatory letter of the Secretary of the Treasury, in pertinent part, as follows:

'The bill would prohibit the bringing of any court proceeding by the United States to enforce the liability of any endorser, transferor, depositary or financial agent arising out of a forged or unauthorized signature or endorsement upon or alteration of any Government check unless such proceeding is commenced within six years after the check is presented for payment, or unless written notice shall have been given within that period of a claim on account of such liability.

"'While at the present time there is no statute of limitations with respect to the claims in question, it is felt that the statute of limitations which would be imposed by the proposed bill is not unreasonable, and the Department would interpose no objection to the enactment of the proposed legislation by the Congress.

"I concur in the view expressed by the Secretary of the Treasury that the limitation which would be imposed by the proposed bill is not unreasonable. However, it is suggested that the language in the proposed draft of bill be clarified in respect of the point of time when the limitation would begin to run. As the proposed draft of bill now reads proceedings must be commenced or written notice given 'within six years after the presentation for payment of such check,' etc. (lines 10 and 11). To avoid any possible contention that such language means that the limitation would begin to run from the time the check was presented to any bank, other institution, or person to be cashed-even though the limitation would operate against the Government, only—it is suggested that there be in. serted (in line 10 of the proposed draft of-bill) between the word 'presentation' and the word 'for the words to the Treasurer of the United States.'

As indicated in report of June 16, 1944, this office knows of no reason why favorable consideration should not be given the bill, supra—the language in the proposed draft of bill, in respect of the point of time when the limitation would begin to run, having been clarified in H. R. 5468. Sincerely yours,

LINDSAY C. WARREN, Comptroller General of the United States.

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