NO. 85-381
I N THE SUPREME COURT OF THE STATE O F MONTANA
1985
E L E A N O R STAPLETON,
Plaintiff and Respondent,
vs.
FIRST SECURITY B A N K , WESTERN M O N T A N A NATIONAL B A N K
A N D FEDERAL H M LOAN B A N K OF SEATTLE,
O E
Defendants and A p p e l l a n t s .
Appeal from: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t
I n and f o r t h e County o f Missoula
The H o n o r a b l e N a t A l l e n , J u d g e p r e s i d i n g .
Counsel of Record:
For Appellants:
Mulroney, Delaney & S c o t t , M i s s o u l a , Montana
G a r l i n g t o n , Lohn a n d R o b i n s o n , M i s s o u l a , M o n t a n a
Worden, Thane & H a i n e s , M i s s o u l a , Montana
For Respondent:
Milodragovich, Dale & Dye, Missoula, Montana
Submitted on b r i e f s : October 10, 1985
Decided: December 3 1 , 1 9 8 5
: ' 1985
j 6 [' 9
F i l e d : J,.J J I
Mr. Chief Justice J. A. Turnage delivered the Opinion of the
Court.
Defendant bank appeals a court order entered in the
Fourth Judicial District, Missoula County, which awarded
p!.aintiff the face amount of two checks payable to Arthur M.
and Eleanor M. Stapleton, plaintiff and her former husband,
following a remand from this Court to determine plaintiff's
interest in the checks. The District Court held that defen-
dant banks had converted the checks in accepting them without
endorsements and without the knowledge of plaintiff, and that
under S 30-3-419(2), MCA, the drawee bank's liability to a
co-payee on a converted instrument is the face amount of the
instrument.
We affirm the District Court order.
This Court remanded for a District Court determination
of the extent of plaintiff's interest in the two checks in
Stapleton v. First Security Bank, et al. (Mont. 1983), 675
P.2d 83, 40 St.Rep. 2015. Pursuant to § 30-3-419(2), MCA, we
concluded that the drawee bank was absolutely liable for the
$32,600 face amount of the two checks. However, at that
time, we would not conclude that the statute required recov-
ery without regard to the joint payee's actual interest in
the check; instead, we concluded that the amount of recovery
by a joint payee is that amount to which he is entitled, up
to and including the face amount of the check. Stapleton,
supra. "On remand, the District Court may consider evidence
... that Eleanor's proportional interest in the proceeds
[of the sale of joint tenancy real estate] was greater or
1-ess than one-half. " (Emphasis added. ) Absent proof other-
wise, Eleanor was entitled to one-half the amount of the
checks. Stapleton, supra.
The District Court held a hearing on April 10, 1985.
Arthur Graham who is a business law professor, a former
professor on the Uniform Commercial Code at the Law School of
the University of lilontana, and a commercial law practitioner,
testified on behalf of appellant, maintaining the position
that by statute her interest was the face amount of the
check. Graham testified that the particular checks as nego-
tiable instruments were not in the form of joint tenancy.
The District Court entered its findings of fact and
conclusions of law on June 10, 1985, finding that the plain-
tiff's interest in the negotiable instruments was not a joint
tenancy interest and. was the face amount of each of the
converted instruments. The court concluded that the Uniform
Commercial Code as adopted in Montana does not provide for
joint tenancy interests in negotiable instruments made pay-
able to more than one person and that the use of the term
"joint payee" does not create a joint tenancy interest. We
agree with the District Court. To create a joint tenancy
interest in a negotiable instrument, there must be an express
declaration in the instrument declaring the ownership to be a
joint tenancy in order to comply with § 70-1-307, MCA.
Appellant, First Security Bank, appeals the granting of
the face amount of the checks to co-payee Eleanor Stapleton,
claiming that the District Court failed to follow the direc-
tions on remand to determine her proportionate interest.
We hold that the District Court followed our directions
to determine her interest and that the findings and conclu-
sions that she was entitled to the face amount are supported
by ample authority. In remanding, we allowed the court to
consider evidence of her equitable interest in the proceeds
of the sale of her home as part of the proof to rebut a
presumption that as joint payee she was entitled to one-half
the amount of the checks. The only I-imitation on what the
court could consider was our restriction against considera-
tion of evidence of other transactions or obligations involv-
ing the parties and the banks. On remand, the court properly
concluded, based upon expert testimony on statutory conver-
sion und.er S 30-3-419(2), MCA, that the drawee was absolutely
liable for the face amount of the two checks to plaintiff as
co-payee on the negotiable instruments.
We are persuaded that the District Court correctly
focused on plaintiff's interest in the checks and properly
made a decision based on statute. In Stapleton I, we agreed
that there was a liability for statutory conversion. In an
effort to be equitable, we followed a Maryland decision which
denied recovery to a joint payee (wife) on a forged endorse-
ment on a theory of conversion when she had released her
interest in real estate prior to sale and therefore had no
interest in the proceeds of the real estate. Mueller v.
Fidelity-Baltimore National Rank (Md. 1961), 174 A.2d 789.
We now recognize that the District Court's reasoning on
remand follows the line of authority on statutory conversion
as adopted by those states which adopted. the Uniform Commer-
cial C0d.e (UCC). Mueller preceded Maryland.'~
adoption of the
UCC and relied on a theory of common-law, not statutory,
conversion. As such, Mueller is superseded in Maryland by
1.
the code (UCC) and subsequent case law. In People's National
Bank of Maryland v. American Fidelity Fire Insurance Co. (Md.
1978) , 386 A. 2d 1254, the appellate court affirmed an award
of damages to a co-payee (surety on a contract) for a face
amount recovery from defendant bank for its statutory conver-
sion under 5 3-419 (1) (c) when the other payee rubber-stamped
an endorsement without knowledge of co-payee and soon after
withdrew the funds. The Maryland court in 1978 did not
expressly overrule Mueller; instead, it interpreted the
intervening code provision for conversion with the code
remedy, i.e., face amount recovery for the statutory
conversion.
Respondent's expert witness testified that the Mueller
decision and line of reasoning was rejected by the UCC draft-
ers in favor of the statutory provision for conversion under
S 30-3-419 (2), MCA. Respondent cites ample authority to
support face amount recovery for joint payee on a conversion
under the code. People's National - -of Maryland, supra;
Bank
Atlas Building Supply Company, Inc. v. First Independent Bank
of Vancouver (Wash. 1976), 550 P.2d 26; Edwards Company, Inc.
v. Long Island Trust Company (N.Y. 1973), 347 N.Y.S.2d 898,
citing State National Bank of Alabama v. Sumco Engineering,
Inc. (Ala.App. 1970), 240 So.2d 366; Hillsley v. State Bank
of Albany (N.Y.App. 1965), 263 N.Y.S.2d 578; R. A. Montgom-
ery, et al. v. First National Bank of Oregon (Ore. 1973), 508
P.2d 428.
Appellant cites no specific authority on the interpre-
tation of conversion of a joint-payee instrument under the
UCC. The only authority cited on appeal involves "law of the
case" decisions: Apple v. Edwards (1949), 123 Mont. 135, 211
P.2d 138, and In re Stoian's Estate (1960), 138 Mont. 384,
357 P.2d 41. Appellant urges this Court that a lower court
cannot ignore the mandate of an appellate court in disposing
of a case on remand. State v. District Court of the Nine-
teenth Judicial District (1979), 184 Mont. 346, 602 P.2d
1002. The "law of the case" in Stapleton I, appellant COR-
tends, required the District Court to determine that plain-
tiff's interest in the checks could not exceed one-half the
amount of the checks.
As the discussion indicates, we disagree with
appellant's assessment of Stapleton I. There we found the
bank absolutely liable for the face amount of the two checks,
$32,600. We concluded that the amount of recovery by a joint
payee may be up to and including the face amount of the
check. We directed the District Court to determine that
amount and stated that it "may consider" evidence as to her
proportional interest in the proceeds. The court considered
the evidence, including expert opinion on the value of a
co-payee's interest in a check wrongfully endorsed by the
other payee and then converted by the bank. By overwhelming
authority, the expert testified, that interest is the face
amount of the checks. We created a temporary ambiguity in
our 1983 decision to remand to the District Court for this
ultimate determination, but the District Court properly
concluded, based upon the clear language of § 30-3-419, MCA,
and upon the evidence at the hearing, that her proportionate
interest was the face amount. Stapleton v. First Security
Bank, et al. (Mont. 1983), 675 P.2d 83, 40 St.Rep. 2015, is
hereby modified to conform with our opinion herein.
The banks in this instance, as in the other cases from
other jurisdict.ions, were in a position to prevent a wrongdo-
er from successfully but wrongfully negotiating an instru-
ment. The banks are liable for statutory conversion of the
face amount of the checks.
We hold that the District Court properly determined
co-payee's interest in the two checks wrongfully negotiated
by the other payee and converted by defendant banks to be the
face amount of the checks pursuant to $ 30-3-419(2), KCA.
Affirmed.
Chief Justice
We concur: