1. An essential element of the offense under § 215 of the
Criminal Code is that the use of the mails be for the purpose of
executing the fraudulent scheme. P.
323 U. S.
95.
2. The fraudulent scheme alleged being one to obtain money, and
participants having obtained the money by cashing checks at banks,
which thereupon became holders in due course, the subsequent
mailings of the checks by the banks to the drawees were not "for
the purpose of executing such scheme" within the meaning of § 215
of the Criminal Code, and the conviction here cannot be sustained.
P.
323 U. S.
94.
140 F.2d 30 reversed.
Certiorari, 321 U.S. 761, to review the affirmance of a
conviction of using the mails to defraud in violation of § 215 of
the Criminal Code.
Page 323 U. S. 89
MR. JUSTICE ROBERTS delivered the opinion of the Court.
We took this case because it involves important questions
arising under § 215 of the Criminal Code. [
Footnote 1] The section provides that
"Whoever, having devised . . . any scheme or artifice to
defraud, or for obtaining money or property by means of false or
fraudulent pretenses, representations, or promises . . . shall, for
the purpose of executing such scheme or artifice or attempting so
to do, place, or cause to be placed, any letter, . . . in any post
office, or . . . cause to be delivered by mail according to the
direction thereon, . . . any such letter, . . . shall be fined not
more than $1,000, or imprisoned not more than five years, or
both."
The petitioner and six others were indicted in three counts for
using the mail in execution of a scheme to defraud. Petitioner's
codefendants pleaded
nolo contendere. He was tried and
convicted on the second and third counts, and the Circuit Court of
Appeals affirmed the conviction. [
Footnote 2]
The indictment alleged that Triumph Explosives, Inc., is a
Maryland corporation engaged in the manufacture of munitions for
the United States, a large amount of whose stock is held by the
general public; that petitioner was President and a director, one
of his codefendants was an officer and director, and five of them
salaried executive and administrative employees, of the company.
The indictment continued that the defendants devised a scheme to
defraud Triumph and its stockholders and obtain money for
themselves by diverting part of the profits of Triumph on its
Government contracts to a corporation known as Elk Mills Loading
Corporation and distributing such profits through salaries,
dividends, and
Page 323 U. S. 90
bonuses to be paid by Elk Mills to the defendants; that, in
pursuance of the scheme, Elk Mills was organized, some defendants
elected officers and directors, and others elected consultants at
substantial salaries, and 49% of its stock distributed to five
defendants, who were administrative employees of Triumph, without
consideration; that Triumph, pursuant to the plan, subcontracted a
Government contract to Elk Mills for 51% of the latter's stock, on
a basis which would yield Elk Mills large profits, and would
involve utilization of the employees and services of Triumph in the
performance of the subcontract, and that the defendants, pursuant
to the scheme, received from Elk Mills salaries and bonuses for
which no substantial services were rendered, and dividends, to the
detriment of Triumph. It was alleged that the fraudulent scheme was
misrepresented upon the minutes of Triumph, and false reasons for
the transaction given. Further, that, pursuant to the scheme, it
was to be represented that some of the defendants would purchase
with their own money, and convey to Elk Mills, certain lands for
the issue to them of 49% of the stock of Elk Mills, whereas it was
not intended that these defendants should use their own funds in
purchasing the land to be transferred in payment of the stock, and
that this plan was carried out. In summary, it was charged that the
scheme was such that Triumph should be deprived of the profits
rightfully belonging to it, and these profits should be distributed
amongst the defendants through the instrumentality of Elk Mills;
that bonuses were to be paid to each of the defendants out of the
profits of Elk Mills, and such bonuses were paid.
In the first count, it was charged that the defendants, for the
purpose of executing the scheme, caused to be delivered by mail a
check drawn by Elk Mills on the Peoples Bank of Elkton, Maryland,
in favor of petitioner. [
Footnote
3]
Page 323 U. S. 91
In the second, it was charged that, for the same purpose, the
defendants caused to be placed in the post office at Elkton a check
drawn by one Jackson on Industrial Trust Company of Wilmington,
Delaware. In the third, it was charged that, for the same purpose,
the defendants caused to be delivered by mail a check drawn by Elk
Mills on the Peoples Bank of Elkton in favor of one of the
defendants, Willis.
At the trial, the Government proved the corporate existence of
Triumph, proved that Triumph held Government contracts, that Elk
Mills was incorporated and became subcontractor of a Government
contract, that the stock of Elk Mills was distributed amongst
certain of the defendants and Triumph, as in the indictment
alleged, that, under the subcontract, Elk Mills was in receipt of
substantial profits, and that these profits were used to pay
salaries and bonuses to the defendants, including petitioner. The
Government offered evidence tending to prove that certain of these
actions had been concealed from other directors of Triumph, and
that the true situation was discovered when a federal officer made
an audit of Triumph's transactions under Government contracts.
The petitioner offered evidence tending to prove that, in order
to expand Triumph's business, two banks had loaned large sums to
Triumph under written agreements which restricted the amount it
could invest in capital assets and restricted the salaries and
bonuses it could pay; that the four defendants who were executive
employees were dissatisfied with their compensation, and threatened
to leave Triumph unless they should receive increased compensation;
that the directors of Triumph devised the plan of incorporating Elk
Mills and subcontracting with it to make possible the payment of
salaries and bonuses without violating Triumph's agreements with
its banks; that petitioner had no other motive in participating in
the transactions relating to Elk Mills, and that, upon being
Page 323 U. S. 92
advised of the arrangement, Triumph's banks were of opinion that
it did not violate the agreements.
It was proved by the Government that one Jackson contracted with
Triumph for the building of a factory for Elk Mills on land
conveyed to Triumph by several of the defendants. Some of these
defendants informed the contractor that he might use the timber
standing on the land in the construction of the building. After he
had done so, they falsely represented to him that they owned the
timber and that he must pay them some $12,000 for it. He did so, by
a check, to their order, and, in turn, billed Triumph for the same
amount. There was evidence that the petitioner was asked whether it
was proper to pay the bill, and that he stated he did not see why
not. It is not contended that the petitioner received any of this
money, and his evidence tended to show he had no knowledge of this
fraud perpetrated on Triumph.
The use of the mails proved under count 2 was this: the check of
Jackson, the contractor, for purchase of the timber, to the order
of defendants Deibert, Feldman, Kann (not petitioner), Prial, and
Willis, was by them endorsed and cashed at the Peoples Bank of
Elkton, Maryland, and was, by that bank, deposited in the mail to
be delivered to the bank in Wilmington, Delaware, on which it was
drawn.
With respect to the third count, the proof was that Elk Mills
delivered its check on the Peoples Bank of Elkton for $5,000 to
Willis, one of the executive employees, as a bonus. It was endorsed
by Willis and deposited with the Farmers Trust Company of Newark,
Delaware. The Newark bank mailed the check to the Peoples Bank of
Elkton.
The petitioner contends first that there is no substantial
evidence that the transactions involving Elk Mills' subcontract
were other than innocent transactions
Page 323 U. S. 93
intended to finance the Government contracts held by Triumph in
conformity to that Company's agreements with the bank, or, if the
transactions were for an improper purpose, there is no proof that
he was a party to any improper use of funds. Secondly, the
petitioner urges that he admittedly received no money from the
checks which are described in counts 2 and 3, and there is no proof
he had knowledge, or reasonable cause to believe, that the checks
would go through the mails, and therefore he did not cause them to
be sent or delivered within the intent of the statute. Thirdly, he
urges that the mailing of the checks by the paying banks could not
be for the purpose of executing the scheme, since the defendants to
whom those checks were delivered had received the money represented
by the checks, and each transaction, after such receipt, was
irrevocable as respects the drawer.
The petitioner strenuously argues his first contention, but, in
the view we take of the case, we find it unnecessary to review the
evidence, if we were otherwise inclined to do so in the face of the
agreement of the courts below that a case was made for the jury on
the question of the fraudulent nature of the scheme and the
petitioner's participation in it.
With respect to the second contention, while there may be some
question as to whether the defendants may be said to have "caused"
the mailing of the checks, we think it a fair inference that those
defendants who drew, or those who cashed, the checks believed that
the banks which took them would mail them to the banks on which
they were drawn, and, assuming the petitioner participated in the
scheme, their knowledge was his knowledge. [
Footnote 4]
The remaining contention is that the checks were not mailed in
the execution of, or for the purpose of executing, the scheme. The
check delivered to the five defendants
Page 323 U. S. 94
by the building contractor in payment for timber they claimed to
own was cashed by them at a local bank in Elkton, Maryland. By
cashing it, they received the moneys it was intended they should
receive under the scheme. The Elkton bank became the owner of the
check. [
Footnote 5] The same is
true of the bonus check delivered to defendant Willis and deposited
and credited to his account. The banks which cashed or credited the
checks, being holders in due course, were entitled to collect from
the drawee bank in each case and the drawer had no defense to
payment. The scheme in each case had reached fruition. The persons
intended to receive the money had received it irrevocably. It was
immaterial to them, or to any consummation of the scheme, how the
bank which paid or credited the check would collect from the drawee
bank. It cannot be said that the mailings in question were for the
purpose of executing the scheme, as the statute requires. [
Footnote 6]
The case is to be distinguished from those where the mails are
used prior to, and as one step toward, the receipt of the fruits of
the fraud, such as
United States v. Kenofskey,
243 U. S. 440.
[
Footnote 7] Also to be
distinguished are cases where the use of the mails is a means of
concealment so that further frauds which are part of the scheme
Page 323 U. S. 95
may be perpetrated. [
Footnote
8] In these, the mailing has ordinarily had a much closer
relation to further fraudulent conduct than has the mere clearing
of a check, although it is conceivable that this alone, in some
settings, would be enough. The federal mail fraud statute does not
purport to reach all frauds, but only those limited instances in
which the use of the mails is a part of the execution of the fraud,
leaving all other cases to be dealt with by appropriate state
law.
The Government argues that the scheme was not complete, that, so
long as Elk Mills remained a subcontractor, the defendants expected
to receive further bonuses and profits, and that the clearing of
these checks in the ordinary course was essential to its further
prosecution. But, even in that view, the scheme was completely
executed as respects the transactions in question when the
defendants received the money intended to be obtained by their
fraud, and the subsequent banking transactions between the banks
concerned were merely incidental and collateral to the scheme, and
not a part of it.
We hold, therefore, that one element of the offense defined by
the statute -- namely, that the mailing must be for the purpose of
executing the fraud -- is lacking in the present case. The judgment
must be reversed.
Reversed.
[
Footnote 1]
18 U.S.C. § 338.
[
Footnote 2]
140 F.2d 380.
[
Footnote 3]
The Government abandoned the first count at the trial.
[
Footnote 4]
Weiss v. United States, 120 F.2d 472;
Steiner v.
United States, 134 F.2d 931;
Blue v. United States,
138 F.2d 351.
[
Footnote 5]
This is so under the Uniform Negotiable Instruments Act, which
has been adopted in Maryland and in Delaware. Anno.Code of Maryland
1939, Art. 13, Sec. 76; Revised Code of Delaware, 1935, c. 78, Art.
4, Sec. 57 (§ 3181). This Act has adopted the rule announced in
Burton v. United States, 196 U. S. 283,
196 U. S. 297;
City of Douglas v. Federal Reserve Bank, 271 U.
S. 489,
271 U. S. 492;
Dakin v. Bayly, 290 U. S. 143,
290 U. S.
146.
[
Footnote 6]
McNear v. United States, 60 F.2d 861;
Dyhre v.
Hudspeth, 106 F.2d 286;
Stapp v. United States, 120
F.2d 898;
United States v. McKay, 45 F. Supp.
1001.
[
Footnote 7]
See also Shea v. United States, 251 F. 440;
Spear
v. United States, 228 F. 485;
Savage v. United
States, 270 F. 14;
Stewart v. United States, 300 F.
769;
Tincher v. United States, 11 F.2d 18.
[
Footnote 8]
See e.g., United States v. Lowe, 115 F.2d 596;
United States v. Riedel, 126 F.2d 81;
Dunham v. United
States, 125 F.2d 895.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK, MR. JUSTICE
JACKSON, and MR. JUSTICE RUTLEDGE concur, dissenting.
I hardly think we would set this conviction aside if the
collecting bank, instead of cashing the checks, took them for
collection only, and refused to pay the defendants until the checks
had been honored by the drawee. It is plain
Page 323 U. S. 96
that the mails would then be used to obtain the fruits of the
fraud. And I do not see why the fraud fails to become a federal
offense merely because the collecting bank cashes the checks. That
would seem to be irrelevant under these circumstances. As pointed
out in
Decker v. United States, 140 F.2d 378, 379, the
object of the scheme was to defraud Triumph, and the use of the
mails was an essential step to that end. It is true that the
collecting bank was a holder in due course against whom the drawer
had no defense. But that does not mean that the fraudulent scheme
had reached fruition at that point of time. Yet if legal
technicalities, rather than practical considerations, are to decide
that question, it should be noted that the defendants were
payee-indorsers of the checks. They had received only a conditional
credit, or payment, as the case may be. It took payment by the
drawee to discharge them from their liability as indorsers. Not
until then would the defendants receive irrevocably the proceeds of
their fraud.
Moreover, this was not the last step in the fraudulent scheme.
It was a continuing venture. Smooth clearances of the checks were
essential lest these intermediate dividends be interrupted and the
conspirators be called upon to disgorge. Different considerations
would be applicable if we were dealing with incidental mailings.
But we are not. To obtain money was the sole object of this fraud.
The use of the mails was crucial to the total success of the
fraudulent project. We are not justified in chopping up the vital
banking phase of the scheme into segments and isolating one part
from the others. That would be warranted if the scheme were to
defraud the collecting bank. But it is plain that these plans had a
wider reach, and that, but for the use of the mails, they would not
have been finally consummated.