BEYER v FIRST NATIONAL BANK OF DIL

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No. 79-3 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980 FRED BEYER, Plaintiff and Appellant, VS . FIRST NATIONAL BANK OF DILLON, Defendant and Respondent. Appeal from: District Court of the Fifth Judicial District, In and for the County of Beaverhead, Honorable Frank E. Blair, Judge presiding. Counsel of Record: For Appellant: Hooks and Budewitz, Townsend, Montana For Respondent: Frank M. Davis, Dillon, Montana W. G. Gilbert 111, Dillon, Montana Submitted on briefs: April 3, 1980 Filed: juF\I 2 1980 Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e C o u r t . P l a i n t i f f a p p e a l s from a judgment e n t e r e d i n t h e D i s - t r i c t C o u r t of t h e F i f t h J u d i c i a l D i s t r i c t , t h e Honorable Frank E. B l a i r , p r e s i d i n g , i n f a v o r o f d e f e n d a n t F i r s t N a t i o n a l Bank of D i l l o n (Bank), i n a n a c t i o n by p l a i n t i f f t o r e c o v e r on a check a l l e g e d l y i m p r o p e r l y n e g o t i a t e d by t h e Bank and d e p o s i t e d i n a j o i n t a c c o u n t c o n t r o l l e d by p l a i n t i f f ' s then wife. On August 8, 1974, Checking Account No. 2-227-7 was opened a t t h e Bank i n t h e names o f p l a i n t i f f Fred Beyer and h i s t h e n w i f e , Peggy Beyer. The a c c o u n t w a s d e s i g n a t e d a s a j o i n t t e n a n c y w i t h r i g h t of s u r v i v o r s h i p . The w i f e , Peggy Beyer, e x e c u t e d t h e s i g n a t u r e c a r d which e v i d e n c e d t h e a c c o u n t and made a n opening d e p o s i t t h e r e i n of money and c h e c k s b e l o n g i n g t o h e r s e l f and h e r husband. She c a u s e d t o b e o r d e r e d , and t h e r e a f t e r r e c e i v e d , p r i n t e d p e r s o n a l c h e c k s embossed "Fred and Peggy Beyer, 35 North I d a h o No. 2, D i l l o n , Montana 59725." Peggy Beyer e x e c u t e d t h e s i g n a t u r e c a r d r e q u i r e d by t h e Bank which e v i d e n c e d t h e a c c o u n t . Plaintiff did not sign t h e c a r d ; however, a t y p e d n o t a t i o n on t h e c a r d r e a d , "Fred Beyer i n t h e h o s p i t a l , w i l l s i g n c a r d l a t e r . " F r e d Beyer never d i d s i g n t h e s i g n a t u r e card. From t h e d a t e t h e a c c o u n t w a s opened o n August 8 , 1974, u n t i l i t w a s c l o s e d on J u n e 3 0 , 1975, p l a i n t i f f and h i s w i f e used t h e c h e c k i n g a c c o u n t . Monthly bank s t a t e m e n t s r e c e i v e d by p l a i n t i f f and h i s w i f e a t t h e i r home a d d r e s s i n d i c a t e d normal c h e c k i n g and d e p o s i t a c t i v i t y o v e r a p e r i o d of some t e n months w h i l e t h e a c c o u n t was open. P l a i n t i f f himself, however, d i d n o t w r i t e any c h e c k s a g a i n s t t h e a c c o u n t . Both p l a i n t i f f and h i s w i f e i n d i v i d u a l l y and j o i n t l y d e p o s i t e d f u n d s t o t h e a c c o u n t from v a r i o u s s o u r c e s , i n c l u d i n g c h e c k s p a y a b l e s o l e l y t o Peggy Beyer as wages, unemployment i n s u r a n c e , and h o s p i t a l i z a t i o n i n s u r a n c e , c h e c k s paya b l e s o l e l y t o p l a i n t i f f a s wages, and c h e c k s p a y a b l e t o p l a i n t i f f and t o h i s w i f e , which w e r e r e c e i v e d from p l a i n t i f f ' s parents. The D i s t r i c t C o u r t found t h a t a l l t h e d e p o s i t s made and c h e c k s drawn on t h i s a c c o u n t w e r e made w i t h t h e knowledge, c o n s e n t and p e r m i s s i o n of p l a i n t i f f . P l a i n t i f f ' s o b j e c t i o n t o t h e manner i n which t h e a c c o u n t w a s u t i l i z e d a p p a r e n t l y developed when t h e c o u p l e s t a r t e d h a v i n g marital difficulties. On o r a b o u t May 1 0 , 1975, p l a i n t i f f and h i s w i f e r e c e i v e d from a n i n s u r a n c e company a check p a y a b l e t o them and t o a n a t t o r n e y i n Great F a l l s , Montana. T h i s check r e p r e s e n t e d t h e p r o c e e d s of t h e s e t t l e m e n t of a p e r s o n a l i n j u r y claim f o r i n j u r i e s which p l a i n t i f f had s u s t a i n e d i n a J u l y 25, 1974, m o t o r c y c l e a c c i d e n t . A s a r e s u l t of t h i s accident, p l a i n t i f f w a s h o s p i t a l i z e d u n t i l mid-October 1974, d u r i n g which t i m e h i s w i f e opened Checking Account No. 2-227-7 August 8 , 1974. on The l i t i g a t i o n r e s u l t i n g i n t h i s s e t t l e m e n t w a s i n s t i t u t e d by p l a i n t i f f and h i s w i f e a s p l a i n t i f f s a g a i n s t Peggy B e y e r ' s i n s u r a n c e company under t h e u n i n s u r e d m o t o r i s t s c o v e r a g e o f t h e i r motor v e h i c l e l i a b i l i t y p o l i c y . The p a r t i e s j o i n t l y , by a w r i t t e n c o n t r a c t , employed a law f i r m t o p r o s e c u t e t h e a c t i o n on t h e i r b e h a l f . Following t h e r e c e i p t of t h e i n s u r a n c e company check, p l a i n t i f f endorsed t h e s a m e , a s d i d h i s w i f e , and r e t u r n e d i t t o t h e i r a t t o r n e y , who w a s a l s o a payee, t o b e n e g o t i a t e d by t h e a t t o r n e y and d i s b u r s e d by him p u r s u a n t t o t h e con- t r a c t of employment. On o r a b o u t May 1 3 , 1975, p l a i n t i f f and h i s w i f e rec e i v e d a check from t h e i r a t t o r n e y i n t h e amount o f $5,899.00, which was t h e i r s h a r e of t h e p r o c e e d s of t h e p e r s o n a l i n j u r y settlement. The check w a s p a y a b l e t o "Fred Beyer and Peggy I t was d e p o s i t e d t o t h e a c c o u n t by Peggy Beyer Beyer." w i t h o u t b e i n g e n d o r s e d by h e r o r by t h e p l a i n t i f f . The Bank n e g o t i a t e d t h i s check a f t e r a Bank employee stamped t h e check w i t h t h e f o l l o w i n g endorsement: " D e p o s i t e d t o t h e a c c o u n t of t h e w i t h i n named payee i n a c c o r d a n c e w i t h p a y e e ' s i n s t r u c t i o n . Absence of t h e endorsement g u a r a n t e e d by t h e F i r s t N a t i o n a l Bank of D i l l o n , Montana." The t r i a l c o u r t found t h a t t h i s d e p o s i t w a s made w i t h t h e s p e c i f i c knowledge and c o n s e n t o f p l a i n t i f f . The c o u r t f u r t h e r found t h a t when t h e $5,899 check w a s r e c e i v e d , t h e c o u p l e a g r e e d t h a t i t would b e d e p o s i t e d t o t h e i r a c c o u n t a t t h e bank and c h e c k s drawn f o r t h e payment o f t h e i r o u t s t a n d i n g b i l l s and f o r t h e o p e n i n g o f a j o i n t savings account. Peggy Beyer immediately proceeded t o draw c h e c k s on t h e a c c o u n t i n payment of t h e b i l l s . These c h e c k s r e p r e s e n t e d payments f o r r e n t , m e d i c a l b i l l s , h o s p i t a l b i l l s , b i l l s f o r l o c a l s e r v i c e s and s u p p l i e s , c r e d i t c a r d i n v o i c e s c h a r g e d t o b o t h p a r t i e s , and t h e repayment of a $1,780.10 l o a n which was owed by Peggy Beyer on t h e f a m i l y u a u t o m o b i l e , a l l of which a g g r e g a t e d t h e s m o f $3,333.51. A t t h i s t i m e , Peggy Beyer opened a j o i n t s a v i n g s a c c o u n t t o which s h e d e p o s i t e d t h e sum o f $1,000. The s i g n a t u r e c a r d e v i d e n c i n g t h e s a v i n g s a c c o u n t was l i k e w i s e s i g n e d o n l y by Peggy Beyer, b u t t h e t r i a l c o u r t found t h a t i t w a s opened w i t h t h e knowledge, c o n s e n t and a t t h e d i r e c t i o n o f p l a i n tiff. Likewise, t h e c o u r t found t h a t Peggy Beyer s i g n e d a l l t h e c h e c k s i n payment o f t h e o u t s t a n d i n g b i l l s w i t h p l a i n t i f f ' s c o n s e n t and a t h i s d i r e c t i o n . ~arital difficulties had arisen between Fred and Peggy Beyer, and on May 28, 1975, two weeks after the arrival of the $5,899 check, plaintiff returned to the State of Pennsylvania where he had formerly resided. He did not return to Montana until the trial of the dissolution of his marriage in the summer of 1976. In the meantime, plaintiff's wife went to Pennsylvania in an unsuccessful effort to effect a reconciliation, purchasing an airline ticket for her transportation in the amount of $198 with a check drawn on the account. While in Pennsylvania, plaintiff's wife gave him various unspecified sums of money, and she also sent him a check for $150 after she returned to Montana. Plaintiff consulted with legal counsel in Pennsylvania and called the Bank regarding the $5p99 check. He there- after obtained counsel in Montana, who made a formal written demand upon the Bank in December 1975. Plaintiff filed his complaint in this action on May 6, 1977, and trial was held on April 3, 1979. The District Court issued its findings of fact and conclusions of law on July 6, 1979, and its judgment in favor of defendant Bank on July 17, 1979. The District Court found that the aggregate benefit which plaintiff realized from the insurance settlement of $5,899 was the sum of $4,681.51, consisting of $3,333.51 for the payment of outstanding bills, including the loan on the family automobile, $1,000 for the joint savings account deposit, $198 for the airline ticket, and the $150 check. Plaintiff acknowledged that he had received the benefit of $1,831.52 for the payment of outstanding bills and expenses, but he denied receiving any benefit from the remainder, in particular, the repayment of the $1,780.10 car loan, the $1,000 deposit opening the joint savings account, and the $150 check. The c o u r t a l s o found t h a t a t no t i m e d u r i n g t h e ten-month e x i s t e n c e of t h e j o i n t a c c o u n t d i d p l a i n t i f f e v e r o b j e c t t o t h e manner i n which it was u t i l i z e d , e i t h e r w i t h r e s p e c t t o t h e d e p o s i t i n g of f u n d s o r t h e w i t h d r a w a l of f u n d s , and t h a t h e a f f i r m a t i v e l y p a r t i c i p a t e d i n b o t h t h e d e p o s i t i n g and d i s b u r s e m e n t o f f u n d s . I t was n o t d i s p u t e d t h a t Fred Beyer n e v e r s i g n e d t h e s i g n a t u r e c a r d o r w r o t e any checks a g a i n s t t h e a c c o u n t . Gary Kruger, c a s h i e r o f t h e d e f e n d a n t Bank and t h e o n l y bank employee c a l l e d a s a w i t n e s s a t t r i a l , t e s t i f i e d t h a t F r e d Beyer, n o t having s i g n e d t h e s i g n a t u r e c a r d , was n e v e r a u t h o r i z e d t o draw c h e c k s on Account No. 2-227-7 and t h a t Peggy Beyer was t h e o n l y p e r s o n who c o u l d draw a check on t h e account. N e v e r t h e l e s s , when asked whether t h e Bank would have honored a check w r i t t e n on t h e a c c o u n t by F r e d Beyer, Kruger s t a t e d , " p o s s i b l y w e would have." H e admitted, however, t h a t i t would n o t be good banking p r a c t i c e and t h a t t h e r e would be no way of knowing whether t h e s i g n a t u r e w a s a forgery o r not. T h i s t e s t i m o n y was a p p a r e n t l y t h e b a s i s of t h a t p a r t of t h e t r i a l c o u r t ' s F i n d i n g No. 9, which s t a t e s : "While t h e P l a i n t i f f n e v e r s i g n e d a check hims e l f , t h e C o u r t f i n d s t h a t h e c o u l d h a v e , and t h a t any s u c h c h e c k s drawn by him would have been p a i d , b e c a u s e o f t h e manner, h a b i t s and u s a g e of t h e a c c o u n t f o r some t e n months." Kruger a l s o t e s t i f i e d t h a t F r e d Beyer d i d n o t e n d o r s e t h e $5,899 check and t h a t h e d i d n o t a u t h o r i z e o r i n s t r u c t t h e Bank t o d e p o s i t t h a t check t o Account No. 2-227-7. P l a i n t i f f likewise t e s t i f i e d t h a t he d i d n o t a u t h o r i z e t h e Bank t o e n d o r s e t h e $5,899 check, b u t t h e Bank n e v e r t h e l e s s stamped i t s g u a r a n t e e d endorsement on t h e check and negot i a t e d it. The D i s t r i c t C o u r t concluded t h a t Checking Account No, 2-227-7 w a s e s t a b l i s h e d and owned by p l a i n t i f f and h i s w i f e and t h a t b o t h were e n t i t l e d t o draw f u n d s on t h e a c c o u n t . F u r t h e r m o r e , t h e p r o c e e d s of t h e $5,899 check w e r e t h e j o i n t p r o p e r t y of p l a i n t i f f and h i s w i f e a s t e n a n t s i n common, and i t was d e p o s i t e d t o Account No, 2-227-7 t o t h e c r e d i t of both payees. The D i s t r i c t C o u r t concluded t h a t p l a i n t i f f was e q u i t a b l y e s t o p p e d from d e n y i n g h i s j o i n t and b e n e f i c i a l owners h i p of t h e a c c o u n t and t h e p r o c e e d s d e p o s i t e d and withdrawn t h e r e f r o m by r e a s o n of h i s a f f i r m a t i v e a c t s , c o n d u c t and s i l e n c e and t h e Bank's r e l i a n c e t h e r e u p o n t o i t s d e t r i m e n t . The D i s t r i c t C o u r t a l s o concluded t h a t p l a i n t i f f w a s g u i l t y o f l a c h e s and t h a t h e had s u s t a i n e d no damages, s o t h a t t o g r a n t him r e l i e f would c o n s t i t u t e u n j u s t e n r i c h m e n t . In the a l t e r n a t i v e , t h e c o u r t a l s o fouild t h a t p l a i n t i f f made a g i f t t o Peggy Beyer t o t h e e x t e n t of h i s co-ownership of t h e moneys d e p o s i t e d t o t h e a c c o u n t . From t h i s judgment, p l a i n - t i f f appeals. The i s s u e on a p p e a l i s whether t h e judgment of t h e D i s - t r i c t C o u r t i s s u p p o r t e d by s u b s t a n t i a l c r e d i b l e e v i d e n c e . Although t h e check a t i s s u e i n t h i s case i s a nonnegot i a b l e i n s t r u m e n t p a y a b l e t o "Fred Beyer and Peggy Beyer," s e c t i o n 30-3-805, MCA, and t h e commission comments t o t h a t s e c t i o n of t h e Uniform Commercial Code make i t clear t h a t C h a p t e r 3 of t h e U.C.C. a p p l i e s t o transactions involving t h i s check, w i t h t h e e x c e p t i o n t h a t t h e r e c a n b e no h o l d e r i n due c o u r s e o f s u c h a n i n s t r u m e n t . check i s governed by s e c t i o n 30-3-116, In particular, this MCA, which p r o v i d e s : " I n s t r u m e n t s p a y a b l e - - -r more p e r s o n s : t o two o t o th - two o An i n s t r u m e n t p a y a b l e - -e o r d e r of - -r more p e r s o n s : " (a) i f i n t h e a l t e r n a t i v e i s p a y a b l e t o any o n e o f them and may b e n e g o t i a t e d , d i s c h a r g e d o r e n f o r c e d by a n y - o f them who h a s p o s s e s s i o n o f it; a l o them -l-f- - and m a y be n e g o t i a t e d , d i s c h a r g e d , (Emphasis or -- e n f o r c e d o n l y 5 all- - of them." - added. . ) S i n c e t h e check i s p a y a b l e o n l y t o "Fred Beyer and Peggy Beyer" t o g e t h e r , s u b s e c t i o n ( b ) a p p l i e s and " b o t h must endorse i n o r d e r t o n e g o t i a t e t h e instrument, although one, of c o u r s e , may b e a u t h o r i z e d t o s i g n f o r t h e o t h e r . " Com- ment t o t h e Uniform Commercial Code, s e c t i o n 30-3-116, MCA. The mere f a c t t h a t t h e copayees are husband and w i f e d o e s n o t a u t h o r i z e one t o s i g n f o r t h e o t h e r : "Normally, when a check i s made p a y a b l e t o husband and w i f e , i t i s c o n s i d e r e d t o be p a y a b l e t o them j o i n t l y and t h e check must b e e n d o r s e d by b o t h o f them Murray, J o i n t Payee Checks--Forged and M i s s i n g End o r s e m e n t s , 78 Comm. L. J. 393, 395 ( 1 9 7 3 ) . . . ." - I t i s u n d i s p u t e d t h a t n e i t h e r Peggy Beyer n o r F r e d Beyer e n d o r s e d t h e $5,899 check, and t h a t i t was d e p o s i t e d t o Account No. 2-227-7 by Peggy Beyer and stamped w i t h t h e Bank's g u a r a n t e e d endorsement. A s a general proposition, " C o u r t s i n a number of c a s e s have h e l d o r r e c o g n i z e d t h a t a c a s h i n g o r c o l l e c t i n g bank which p a y s a check drawn t o j o i n t p a y e e s , o t h e r than p a r t n e r s , without obtaining t h e a u t h e n t i c endorsement o f a l l s u c h p a y e e s , i s l i a b l e t o a n o n s i g n i n g payee f o r t h e v a l u e of h i s i n t e r e s t i n t h e check, u n l e s s t h e n o n s i g n i n g payee h a s a u t h o r i z e d o r r a t i f i e d s u c h payment." Annot., 47 A.L.R.3d 537, 543 ( 1 9 7 3 ) . S e e Edwards Co. I n c . v . Long I s l a n d T r u s t Co. ( 1 9 7 3 ) , 75 The d e p o s i t o r y o r c o l l e c t i n g b a n k ' s l i a b i l i t y t o a none n d o r s i n g copayee h a s been founded on a c o n v e r s i o n t h e o r y : "A bank's liability for paying a check drawn to joint payees without requiring the authentic endorsement of all such payees usually has been based upon the view that the payment of such a check without the statutorily prescribed endorsements constituted a conversion of the instrument or was a breach of a quasi-contractual duty." Annot., 47 A.L.R. 3d 537, 540 (1973). Peoples Nat'l Bank v. American Fidelity Fire Ins. Co. (1978), 39 Md.App. 614, 386 A.2d 1254; Trust Co. of Columbus v. Refrigeration Supplies, Inc. (1978), 241 Ga. 406, 246 S.E.2d 282, 011 remand 146 Ga.App. 825, 247 S.E.2d 542; Berkheimers, Inc. v. Citizens Valley Bank (1974), 270 0r.App. 807, 529 P.2d 903; Federal Deposit Insurance Corp. v. Marine Natl. Cf., Insurance Co. of (1970), 121 Ga.kpp. 1, 172 Bank (5th Cir. 1970), 431 F.2d 341; North America v. Atlas Supply Co. S.E.2d 632. In particular, this result has been reached under the Uniform Commercial Code, section 30-3-419, MCA, which provides: " (1) An instrument is converted when: (c) it is paid on a forged endorsement." ... With reference to this section, it has been observed: "While the Code rule is strictly applicable only to cases involving payment on a forged endorsement, it may be applied by analogy to those cases wherein a check was paid without requiring the endorsement of a coAnnot., 47 A.L.R.3d 537, 541 payee. (1973), citing Federal Deposit Ins. Corp. v. Marine Natl. Bank (5th Cir. 1970), 431 F.2d 341. . ." See also Peoples Natl. Bank v. American Fidelity Fire Ins. Co. (1978), 39 Md.App. 614, 386 A.2d 1254. The same result was reached in Berkheimers, Inc. v. Citizens Valley Bank (1974), 270 0r.App. 807, 529 P.2d 903, on general principles of law relating to conversion under Section 1-103 of the U.C.C. "The rationale of such decisions appears to be that since joint-payee instruments require the endorsement of all payees under § 3-116(b), payment on the endorsement of fewer than all payees is an exercise of dominion and control over the instrument inconsistent with the rights of the owner, and results in liability for conversion." Annot., 47 A.L.R.3d 537, 542 (1973). Section 30-3-419(3), MCA, however, gives the depository or collecting bank a defense to a suit for conversion and limits the bank's liability where the bank acts in good faith and in accordance with reasonable commercial standards: .. ", a representative, including a depository or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands." See Murray, supra, 78 Comrn. L. J. at 402; Comment 5 to section 3-419 of the U.C.C.; and sections 30-4-201(1) and 30-4-202(1) (a), MCA. Therefore, if the defendant-respondent, First National Bank of Dillon, acted in good faith and in accordance with reasonable commercial standards when it permitted Peggy Beyer to deposit the $5,899 check payable to "Fred Beyer and Peggy Beyer" in Checking Account No. 2-227-7 without the endorsement of either payee, the Bank would not be liable to Fred Beyer beyond the amount of any proceeds remaining in the Bank. Since the record indicates that neither the instrument itself nor any proceeds of it remained in the Bank at the time of suit, the Bank would not be liable at all if it acted in good faith and in accordance with reasonable commercial standards. The Bank's good faith has not been challenged, and since the account to which the check was deposited was in fact the joint account of Fred and Peggy Beyer, as the trial court found, the Bank has complied with reasonable commercial standards. Without a g a i n r e c i t i n g t h e f a c t s i n t h i s c a s e , w e f i n d t h e c o n c l u s i o n s of t h e D i s t r i c t C o u r t t o be s u p p o r t e d by s u b s t a n t i a l evidence. - Mont. (1978) Arrowhead, I n c . v. Safeway S t o r e s , 587 P.2d 4 1 1 , 35 St.Rep. 1830. In p a r t i c u l a r , t h e r e i s s u b s t a n t i a l evidence t o support t h e c o n c l u s i o n t h a t p l a i n t i f f - a p p e l l a n t F r e d Beyer i s e q u i t a b l y e s t o p p e d from denying h i s j o i n t and b e n e f i c i a l ownership of Account No. 2-227-7, by v i r t u e o f h i s acknowledgement and u s e of t h e a c c o u n t o v e r a p e r i o d of t i m e , and t h e Bank's r e l i a n c e t h e r e u p o n i n c r e d i t i n g t h e $5,899 check t o t h a t account. & Co. S e c t i o n 26-1-601(3), MCA; Howeth v. D. A. Davidson ( 1 9 7 3 ) , 163 Mont. 355, 517 P.2d 722; C i t y of B i l l i n g s v . P i e r c e Pa.c!;ing Ca. ( 1 9 4 5 ) , 117 Mont. 255, 1 6 1 P - 2 d 636; Mundt v. Mallon ( 1 9 3 8 ) , 106 Mont. 242, 76 P.2d 326, 329. A p p e l l a n t c a n n o t b e h e a r d t o complain t h a t h e l a c k e d a u t h o r i t y t o draw c h e c k s on t h e a c c o u n t when he c o u l d have remedied t h a t s i t u a t i o n by t h e s i m p l e e x p e d i e n t s i g n i n g of t h e s i g n a t u r e card. The judgment of t h e D i s t r i c t CourtJs affirmed. ,LGid)L Justice W e concur: %A, 4 PChief J u s t i c e df

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