The opinion of the court was delivered by: ADKINS
I am very much impressed with the manner in which counsel have prepared the cases and presented the arguments on the motion. It is one of those cases where the more preparation on the part of counsel, the more work the court has had to do in examining this multitude of decisions. The real difficulty seems to be that there is considerable conflict of authority on more than one at least of the propositions of law involved.
There are many cases where a decision either way may fail to impress the court as being exact justice. For instance, in many cases today the doctrine of contributory negligence seems unfair; this is one of the cases where I think the authorities and decisions, either way, are not in accordance with precise justice. Probably that is the reason for the change which has taken place in the last 40 or 50 years in the growth of the law on this subject; so with that, I will give you the conclusions I have reached.
In the first place, the checks involved were not payable to bearer; I understood that proposition is not disputed.
In the second place, in my opinion, the statute of limitations is not applicable. Section 1268 of the code, Code 1940, § 12 -- 204, provides that the statute of limitations shall not apply to any case in which the United States is the real and not merely the nominal plaintiff. I think this also disposes of the question of laches, speaking now of the equitable defense of laches as comparable to the statute of limitation.
Of course, if, after discovery of the forgery there was unreasonable delay in giving notice thereof, and the banks were prejudiced thereby, such delay would be a defense to the extent of the loss shown. That this is settled is plain from Ladd and Tilton Bank v. United States, 9 Cir., 30 F.2d 334. I understand no contention is made here that, because of delay in giving notice after discovery, to the banks, they suffered loss within the meaning of the rule just mentioned. I understand their contention to be that they suffered loss because the fraud continued, and they cashed additional checks.
The remaining defenses, which were very strongly relied on, were negligence in the issuance of the checks and equitable estoppel. The facts claimed to support these defenses and the defense of laches are, to a large extent, the same; that is, those defenses are said to be established by pretty much the same evidence.
Stitely began his frauds as far back as 1932; the imaginary C.C.C. camp was started in 1933. The fraud was discovered in April 1937, which discovery made it impossible for Stitely to secure any more checks, and so put an end to his negotiation of such checks.As I understand it, the defendants contend that the government was negligent in permitting even the first check to be issued and that this negligence continued and increased throughout the duration of the fraud; that the fraud was discovered by accident and not by any care on the part of Government officials.
It is contended that if the Government had exercised due care in the first place, the first fraud could not have occurred; that thereafter, there was no examination and inspection of the checks; no examination and reconciliation of the books, records and accounts, and no inspection of camps; that Stitely knew of the precise condition of affairs except perhaps, as to the failure to make inspections of camps and knew of the failure to take proper safeguards in the handling of the checks generally; that if Stitely had been content to deal only with the imaginary camp, he probably would never have been caught.
But, because he grew bolder and branched out into other accounts, the discovery came sooner than it might otherwise, if at all.
Well, if the C.C.C. Camps were ever abandoned, there might have been a check or an inventory which would have developed this situation. Similar cases have been occurring over a period of years, and my experience indicates that sooner or later they are discovered although sometimes the dishonest employee is dead when the discovery takes place. It cannot be denied that if the Government had earlier discovered the frauds, the banks would not have cashed subsequent checks.
The question is what, if any, duty was owing from the Government to the defendant banks? Whether there was any duty owing to the banks or the banks had made an actual or implied warranty of the checks, and the genuineness of their endorsement, and whether, if the Government was negligent, that negligence was the proximate cause of the payment of the checks by the bank.
Now, the answer to these questions will depend, to some extent, on the nature of the obligation assumed by the banks when they cashed the checks, and the nature of their implied or expressed warranties to the Government.
It seems to be settled that the effect of the decisions of the Supreme Court in United States v. National Exchange Bank, 214 U.S. 302, 29 S. Ct. 665, 53 L. Ed. 1006, 16 Ann.Cas. 1184, and in Leather Manufacturers' National Bank v. Merchants' National Bank, 128 U.S. 26, 9 S. Ct. 3, 32 L. Ed. 342, is to hold that there was an implied warranty on the part of the banks arising out of their endorsement of the checks, that is, an implied warranty of the genuineness of the prior endorsements, and the right to ...