EATINGER v FIRST NAT L BANK OF LE

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No. 82-04 IN THE SUPRE.MJ3 COURT OF THE STATE OF !JIONTANA 1982 RUTH H. EATPNGER, Plaintiff and Appellant, VS. FIRST NATIONAL BANK OF LEWISTOWN, a National Banking Corporation, Defendant and Respondent. Appeal from: District Court of the Tenth Judicial District, In and for the County of Fergus Honorable LeRoy L. McKinnon, Judge presiding. Counsel of Record: For Appellant: K. Robert Foster argued, Lewistown, Montana For Respondent: Peter L. Rapkoch argued, Lewistown, Montana Submitted: July 8, 1982 Decided: August 11, 1982 Mr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. In an action by a depositor against a bank for conversion of two checks, the jury returned a verdict in favor of the bank and judgment was entered thereon. Follow- ing denial of her motion for a new trial, the depositor appeals. We reverse. On August 4, 1976, plaintiff Eatinger drew a check on her account at defendant First National Bank of Lewistown in the amount of $7,128.32. She gave the check to Ervan Glover, a contractor working for her, who was to take the check to Great Falls to pick up the various supplies indicated on the face of the check (specific dollar amounts were allocated for "poles," "form material," "lumber ,' etc., I $7,128.32) totaling from Intermountain Company, the payee. Unknown to plaintiff, Glover endorsed the check at defendant bank "for exchange Glover." only to Intermountain Company by Ervan Defendant issued a cashier's check to Intermoun- tain Company for $7,128.32 which listed plaintiff as the remitter and was signed by an officer of the bank. Glover applied the cashier's check to his own account with Intermountain rather than using it to buy materials for plaintiff. On August 17, 1976, plaintiff similarly drew a check for $5,500, and Glover followed the same procedure and applied defendant's cashier's check to his account at Custom Corrugating and Supply, the payee. After plaintiff reviewed her August bank statement wherein the two checks were charged against her account, she discovered that Glover had endorsed them. She went to defendant bank and was told by one of the bank's employees that there was nothing to worry about since the cashier's checks were made out to the appropriate payees. Late in October Glover called plaintiff and told her he was out of money and was not finishing his contracting job for her. Plaintiff then discovered that Glover had applied the proceeds to his own accounts with the payees rather than her account. Glover has subsequently disap- peared. On March 27, 1977, plaintiff filed an amended complaint for the conversion by defendant bank of the two checks and prayed for judgment in the total sum of the two checks ($12,628.32) plus interest. Defendant denying any failure to properly perform raised as defenses plaintiff's answered, its duties, and failure to timely notify defendant of any claimed mistakes and the fact that the intended payees of the checks received the proceeds thereof. After plaintiff's motion for summary judgment was denied, the case was verdict for defendant. tried to a jury which returned a Plaintiff's motion for a new trial was denied, and plaintiff appeals. Although appellant presents numerous issues for our review on appeal, one issue is dispositive in this case, i.e., whether the District Court erred in denying plain- tiff's motion for summary judgment. A successful motion for summary judgment requires that there be no genuine issues of material fact and that the moving party be entitled to judgment as a matter of law. Rule 56(c), l4.R.Civ.P. Appellant contends that the denial of her summary judgment motion runs counter to several cases including H i l l s l e y v. N.Y.S.2d S t a t e Bank of A l b a n y ( 1 9 6 6 ) , 1 8 N.Y.2d 1 4 8 , 22.3 N.E.2d 667, (1977), 564. B o t h o f t h e s e cases h o l d t h a t , 4 1 N.Y.2d 394 N.Y.S.2d 858, even though t h e may t h e p r o c e e d s of a check, the purpose which for bank may be h e l d for liable. 202 S.E.2d if intended payee t h e funds a r e n o t were they intended the A p p e l l a n t a l s o c i t e s Conwed Cor- p o r a t i o n v . F i r s t C i t i z e n s Bank 48, 363 N.E.2d i n a forged endorsement o r a b s e n t endorsement c a s e , applied 277 5 7 1 , and T o n e l l i v . C h a s e M a n h a t t a n Bank receive 952, & T r u s t Co. ( 1 9 7 4 ) , 262 S.C. 22, w h i c h r e v e r s e d a summary j u d g m e n t f o r t h e d e f e n d a n t bank i n s i m i l a r c i r c u m s t a n c e s and remanded f o r a t r i a l on t h e m e r i t s . R e s p o n d e n t a t t e m p t s t o d i s t i n g u i s h T o n e l l i on s e v e r a l g r o u n d s i n c l u d i n g t h e f a c t t h a t t h e r e a c a s h i e r ' s c h e c k was i s s u e d on an unendorsed check whereas h e r e Glover e n d o r s e d t h e checks. Respondent a l s o a r g u e s t h a t d e f e n d a n t is n o t l i a b l e because the payee r a t i f i e d Glover's actions. argument respondent further contended that apparent authority t o negotiate p l a i n t i f f ' s many the residents of area knew that he On o r a l Glover had checks because was employed by plaintiff. W e a r e n o t p e r s u a d e d by r e s p o n d e n t ' s r e a s o n i n g . Here t h e d e f e n d a n t a c c e p t e d and n e g o t i a t e d two c h e c k s w h i c h w e r e n o t e n d o r s e d by t h e p a y e e s o r by a n y o n e who was c l o t h e d w i t h a p p a r e n t o r a c t u a l a u t h o r i t y t o s o a c t f o r them. G l o v e r was n o t c o n n e c t e d w i t h t h e p a y e e s i n a n y way. S e c t i o n 30-4-401(1), charge a customer's payable." preted this There that a bank may a c c o u n t f o r a n i t e m t h a t is " p r o p e r l y a r e a number language provides MCA, t o require of cases w h i c h h a v e i n t e r - proper endorsements. For example, 620, i n K o s i c v. 446 N.Y.S.2d "Captain Blake's, Ferry." N a r i n e M i d l a n d Bank 264, 430 N.E.2d ( 1 9 8 l ) , 5 5 N.Y.2d 1317, as t h e p a y e e was Inc." a check endorsed by "S. The c o u r t f o u n d t h a t t h e d e f e n d a n t bank b r e a c h e d its d u t y t o its customer by c h a r g i n g t h e s e c h e c k s a g a i n s t h i s a c c o u n t b e c a u s e t h e y were n o t p r o p e r l y p a y a b l e s e c t i o n 4-401). U.C.C. with defense that (citing The c o u r t a l s o r e j e c t e d t h e b a n k ' s t h e funds reached t h e intended payee because t h e proceeds never reached t h e account of Captain B l a k e ' s , Inc. Similarly, National Bank N.E.2d 519, joint of payees i n Cincinnati Akron (1980), I n s u r a n c e Co. 63 O h i o St. 2d a c h e c k l a c k i n g t h e e n d o r s e m e n t of was c o u n t e r p a r t of our held not properly s e c t i o n 30-3-116, v. 220, 407 one of the under the payable Here, MCA. First t h e bank a c c e p t e d and c h a r g e d a g a i n s t p l a i n t i f f ' s a c c o u n t two c h e c k s which were n o t p r o p e r l y e n d o r s e d and t h e r e f o r e n o t p r o p e r l y payable. The bank may not charge plaintiff's account therefor. The b a n k ' s d e f e n s e on t h e g r o u n d s t h a t t h e p r o c e e d s of the fail. checks reached the i n t e n d e d p a y e e s must similarly T h i s r u l e is b a s e d o n t h e e q u i t a b l e p r i n c i p l e t h a t t h e d r a w e r s h o u l d n o t be u n j u s t l y e n r i c h e d o r be p e r m i t t e d t o recover f r o m t h e d r a w e e bank w h e r e h e h a s s u f f e r e d no l o s s from t h e improper payment of Here i t i s u n c o n t r o v e r t e d tial losses because she t h e check, Kosic, that plaintiff did not supra. suffered substan- receive m a t e r i a l s f o r which t h e c h e c k s were drawn. the building Consequently, t h e r e is no u n j u s t e n r i c h m e n t . The c o r r e c t r u l e o f l a w t o b e a p p l i e d i n t h i s case i s outlined in Tonelli and Hillsley, supra. messenger In Tonelli a took a certified check made payable to Totowa Savings and Loan to the drawee bank and, at the messenger 's request, the bank issued a cashier's check payable to Totowa without Totowa's endorsement. The messenger opened an account at Totowa but used the funds for a purpose other than that for which the original check was drawn. In finding liability in favor of the drawer against the drawee bank, the New York Court of Appeals stated the following: ". . . Totowa, the true payee, never actually received the proceeds of the original certified check for the purpose i n t e n d e d b y the drawer. By virtue of the issuance of the cashier's check, the thieves were able to convert the fund's moneys to their own use. Under these circumstances, the reasoning of Hillsley v. State Bank of Albany (24 A.D.2d 28, 263 N.Y.S.2d 578, aff'd. 18 N.Y.2d 952, 277 N.Y.S. 2d 148, 223 N.E. 2d 571), is applicable to the instant case. In Hillsley (pp. 30-31, 263 N.Y.S.2d pp. 580-581), the court held that a drawee bank, which paid a certified check over a forged indorsement, could not rely upon the defense that the funds eventually reached the rightful payee where the proceeds of the check were not applied by the payee for the purpose intended by the drawer." (Emphasis added.) 394 N.Y.S.2d at 861, 363 N.E.2d at 567. Respondent contends that plaintiff's summary judgment motion was properly denied because there were issues of rnaterial fact including the standard of commercial reasonableness to be applied to the bank and plaintiff's lack of timely notice of the bank's purported errors. The issue of commercial We disagree. reasonableness arises virtue of section 30-3-406, MCA, which reads as follows: "Nepl igence contributing to alteration or -- -- unauthorized signature. Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due by course or against a drawee or other payor who pays the instrument in good faith ind in accordance with the reasonable commercial -------standards of the drawee's or Davor's business." (Emphasis added.) The scheme of the U.C.C. requires that the depository bank authenticate the signatures on instruments presented to it. Tubin v. Rabin (N.D. Tex. 1974), 389 F.Supp. 787. See, Atlas Building Supply Co., Inc. v. First Independent Bank of Vancouver (1976), 15 Wash.App. 367, 550 P.2d 26 (the bank's failure to determine whether a copayee's endorsement was authorized was not in accord with reasonable commercial standards). In Twellman v. Lindell Trust Co. (Mo.App. 1976), 534 S.W.2d 83, 93 ALR3d 943, the court held, as a matter of law, that the drawee bank, in accepting a check whose first endorsement was made by someone other than the payee, did not act in accordance with reasonable commercial standards and affirmed the directed verdict for the plaintiff. Here, copies of the checks were attached to the amended complaint and clearly showed the endorsement was by someone other than the payee. Because of this, the bank did not act in accordance with reasonable commercial standards as a matter of law. Moreover, section 30-4-207(4), MCA, gives the plaintiff a reasonable time to notify the bank after learning of any breach. notified Here, plaintiff's affidavit indicated that she the bank immediately after irregular endorsements. she discovered This sworn affidavit must be taken as true on motion for summary judgment. Conrad (1982), 680. the Mont. , 643 P.2d See, State v. 239, 39 St.Rep. The notice here was certainly given within a reason- a b l e t i m e under supra, where s e c t i o n 30-4-207(4), the court held that, See, MCA. within the Twellman, time frame t h e r e had been n o t i f i c a t i o n w i t h i n a r e a s o n a b l e given there, t i m e as a m a t t e r o f law. S i n c e w e h o l d t h a t p l a i n t i f f s h o u l d have been g r a n t e d summary we judgment, need not address plaintiff's other i s s u e s w h i c h d e a l w i t h t h e s u b s e q u e n t t r i a l . By o u r v a c a t i o n of t h e D i s t r i c t C o u r t judgment, w i s e vacated, Rule 3 3 ( a ) , M.R.App.Civ.P. s u b m i t a memorandum o f 25-10-503, t h e award of c o s t s is l i k e - her Appellant costs a s prescribed shall in section MCA. R e v e r s e d a n d remanded t o t h e D i s t r i c t C o u r t f o r e n t r y of judgment $12,628.32, $7,128.32 in favor of plaintiff interest from August d e p o s i t o r i n t h e sum o f sum of a n d f r o m A u g u s t 1 7 , 1 9 7 6 , o n t h e sum o f $ 5 , 5 0 0 , to d a t e of judgment, 4, 1976, on and c o s t s . %& A, g# Chief J u s t i c e We concur: /' the Mr. J u s t i c e F r a n k B. M o r r i s o n , J r . , I concur s p e c i a l l y concurring: but take exception t o t h e language i n t h e m a j o r i t y o p i n i o n which s t a t e s : " T h i s sworn a f f i d a v i t must be t a k e n as t r u e on m o t i o n f o r summary judgment.'' c i t e s S t a t e v. Conrad ( 1 9 8 2 ) , 39 S t . R e p . 680. , Mont. The C o n r a d case h o l d s The C o u r t 643 P.2d 2 3 9 , t h a t an a f f i d a v i t must be t a k e n a s t r u e where f i l e d i n s u p p o r t of a n informat i o n and w h e r e p r o b a b l e c a u s e is s o u g h t t o t h e r e b y b e e s t a b T h i s is w e l l - a c c e p t e d lished. here. law b u t h a s no a p p l i c a t i o n I n C o n r a d t h e a f f i d a v i t a l l o w s t h e case t o g o f o r w a r d where h e r e , under t h e m a j o r i t y h o l d i n g , t h e a f f i d a v i t ends the litigation. I n t h i s case p l a i n t i f f s u p p o r t s a m o t i o n f o r summary judgment with an a f f i d a v i t . The a f f i d a v i t , if u n r e f u t e d , may f o r m t h e b a s i s f o r g r a n t i n g summary j u d g m e n t . However, i t n e e d n o t be a c c e p t e d by t h e t r i a l c o u r t a s t r u e . The t r i a l c o u r t c o u l d f i n d t h a t t h e d o c u m e n t was n o t c r e d i b l e . The r e s u l t h e r e d o e s n o t c h a n g e . T h e r e i s no c o n f l i c t i n t h e e v i d e n c e p r o d u c i n g a g e n u i n e i s s u e of fact. Given t h i s r e c o r d t h e p l a i n t i f f is e n t i t l e d t o summary j u d g m e n t .

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