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 totaling
$7,128.32) from Intermountain Company, the payee. Unknown
to plaintiff, Glover endorsed the check at defendant bank
"for exchange only to Intermountain Company by Ervan
Glover." 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 Inter-
mountain 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 com-
plaint 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 answered,
denying any failure to properly perform its duties, and
raised as defenses plaintiff's 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 tried to a jury which returned a
verdict for defendant. 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. S t a t e Bank of A l b a n y ( 1 9 6 6 ) , 1 8 N.Y.2d 952, 277
N.Y.S.2d 1 4 8 , 22.3 N.E.2d 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 (1977), 4 1 N.Y.2d 667, 394 N.Y.S.2d 858, 363 N.E.2d
564. B o t h o f t h e s e cases h o l d t h a t , i n a forged endorsement
o r a b s e n t endorsement c a s e , even though t h e intended payee
may receive t h e p r o c e e d s of a check, if t h e funds a r e n o t
applied for the purpose for which they were intended the
bank may be h e l d liable. 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 & T r u s t Co. ( 1 9 7 4 ) , 262 S.C.
48, 202 S.E.2d 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. On o r a l
argument respondent further contended that Glover had
apparent authority t o negotiate p l a i n t i f f ' s checks because
many residents of the area knew that he 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), MCA, provides that a bank may
charge a customer's 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
payable." There a r e a number of cases w h i c h h a v e i n t e r -
preted this language t o require proper endorsements. For
example, i n K o s i c v. N a r i n e M i d l a n d Bank ( 1 9 8 l ) , 5 5 N.Y.2d
620, 446 N.Y.S.2d 264, 430 N.E.2d 1317, a check with
"Captain Blake's, Inc." as t h e p a y e e was endorsed by "S.
Ferry." 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 (citing
U.C.C. s e c t i o n 4-401). 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
defense that 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, i n Cincinnati I n s u r a n c e Co. v. First
National Bank of Akron (1980), 63 O h i o St. 2d 220, 407
N.E.2d 519, 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 one of the
joint payees was held not properly payable under the
c o u n t e r p a r t of our s e c t i o n 30-3-116, MCA. Here, 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 checks reached the i n t e n d e d p a y e e s must similarly
fail. 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 t h e check, Kosic, supra.
Here i t i s u n c o n t r o v e r t e d that plaintiff suffered substan-
tial losses because she did not receive the building
m a t e r i a l s f o r which t h e c h e c k s were drawn. 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. In Tonelli a
messenger 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 certi-
fied 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 appli-
cable 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 certi-
fied 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 reason-
ableness to be applied to the bank and plaintiff's lack of
timely notice of the bank's purported errors. We disagree.
The issue of commercial reasonableness arises by
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
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 en-
dorsement 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 plain-
tiff a reasonable time to notify the bank after learning of
any breach. Here, plaintiff's affidavit indicated that she
notified the bank immediately after she discovered the
irregular endorsements. This sworn affidavit must be taken
as true on motion for summary judgment. See, State v.
Conrad (1982), Mont. , 643 P.2d 239, 39 St.Rep.
680. The notice here was certainly given within a reason-
a b l e t i m e under s e c t i o n 30-4-207(4), MCA. See, Twellman,
supra, where the court held that, within the time frame
given there, 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
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 judgment, we 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, t h e award of c o s t s is l i k e -
w i s e vacated, Rule 3 3 ( a ) , M.R.App.Civ.P. Appellant shall
s u b m i t a memorandum o f her costs a s prescribed in section
25-10-503, 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 in favor of plaintiff d e p o s i t o r i n t h e sum o f
$12,628.32, interest from August 4, 1976, on the sum of
$7,128.32 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, and c o s t s .
%&
A, g#
Chief J u s t i c e
We concur:
/'
Mr. J u s t i c e F r a n k B. M o r r i s o n , J r . , s p e c i a l l y concurring:
I concur 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.'' The C o u r t
c i t e s S t a t e v. Conrad ( 1 9 8 2 ) , Mont. , 643 P.2d 2 3 9 ,
39 S t . R e p . 680. The C o n r a d case h o l d s 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 informa-
t 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 -
lished. T h i s is w e l l - a c c e p t e d law b u t h a s no a p p l i c a t i o n
here. 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 .