No. 8 2 - 3 0 3
IN TBE SUPREME COURT OF THE STATE OF MONTANA
1983
ELEANOR STAPLETON,
Plaintiff and Appellant,
-vs-
FIRST SECURITY BANK,
Defendant and Respondent.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Flissoula,
The Honorable W. W. Lessley, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Milodragovich, Dale & Dye; Lon J. Dale argued,
Missoula, Montana
For Respondent :
Mulroney, Delaney & Dalby; Dexter Delaney argued,
Missoula, Montana
Submitted: September 13, 1983
Decided: December 23, 1983
Filed:
-
Clerk
Mr. Justice Fred J. Weher delivered the Opinion of the Court.
Plaintiff Eleanor Stapleton sued for statutory
conversion of $32,600. She appeals from the judgment of the
Fourth Judicial District Court, Missoula County, in favor of
three defendant banks. We reverse and remand for further
proceedings.
The relevant issues are:
1. Did the District Court err in determining, as to
drawee banks Western Montana National Bank (Western) and
Federal Home Loan Bank of Seattle (Federal), that plaintiff
as a joint payee could recover less than the face amount of
the converted instruments?
7
A * Did the District Court err in determining that
collateral estoppel precluded recovery by the plaintiff?
Arthur and Eleanor Stapleton, husband and wife, had a
joint checking account at First Security Bank (First
Security). On October 1, 1.974, Eleanor closed the account by
withdrawing all remaining funds and writing "closeout" in the
memo portion of her check. First Security recognized her
cl-osing of the account by not carrying the account on the
bank's computer trial bala.nce and by not sending statements
after October, 1974.
In April 1976, Arthur deposited two joint-payee checks
in the closed account. Both checks were payable to Arthur M.
and Eleanor M. Stapleton. The two checks were in payment for
sale of real property located in I!lissoula, Montana and owned
by Eleanor and Arthur as joint tenants. The checks totaled
approximately $32,600. First Security reopened the closed
account and deposited the checks. The District Court
expressly found that Eleanor was no longer a customer of the
bank. First Security accepted both checks without the
endorsement of either payee and without the knowledge or
consent of Eleanor. Despite the absence of endorsements,
Western and Federal, the drawee banks, accepted and paid the
respective checks when received by them. Shortly after
depositinq the checks, Arthur withdrew $32,500 from the
account without the knowledge or consent of Eleanor.
Later in 1976, Arthur left Montana and initiated divorce
proceedings against Eleanor in the State of Nevada. Eleanor
participated in the Nevada proceedings and was represented by
ccunsel. The Nevada District Court determined the marital
assets of the Stapletons, including proceeds from the sale of
real property. The Court found assets in the amount of
approximately $125,000.
The Court referred to the sale of the Missoula property
and noted that the proceeds from the sale represented by the
two checks were converted by Arthur. But the decree did not
specifically find that the proceeds were available for
distribution. The Court did not specifically determine
whether Arthur had retained or dissipated those proceeds.
First Security now claims those proceeds were available for
distribution. The Court reco~nized Arthur ' s attempts to
abscond with marital assets. Finally, the Court awarded
Eleanor $25,000 plus miscellaneous personalty.
Arthur appealed the Nevada judgment, but prior to
decision the parties settled. They executed a Settlement
Agreement and Satisfaction of Judgment, whereby Eleanor
released Arthur from all obljgations emanating from the
divorce decree in return for $13,500 and dismissal of the
appeal. The Settlement Aureement stated it was an effort to
"resolve all litigation" between the parties in the State of
Nevada and any other actions "emanating" from the Nevada
iudgment . The Satisfaction of Judgment incorporated the
Settlement Agreement and stated that the parties had "settled
all matters of controversy between them ... in
consideration of ... $13,500." The Settlement Agreement
and Satisfaction of Judgment were executed more than two
months after this lawsuit was filed.
Eleanor filed suit in Montana for statutory conversion
under the Montana Uniform Commercial Code (UCC) aqainst First
Security, the depositary bank, in January 1977. Eleanor
later amended the complaint to include defendants Western and
Federal, drawee banks. Both drawee banks cross-claimed
against First Security for indemnification under the warranty
provisions of the UCC. First Security counterclaimed against
Eleanor and filed. a third-party action against Arthur. The
District Court severed the third-party action. The case was
submitted on stipulated facts to the District Court sitting
without a jury. Findings and conclusions were entered on
June 3, 1982 and judgment for defendants was entered on June
18, 1982. Plaintiff Eleanor appeals. The parties executed a
"Stipulation for Nonappearance" of Western and Federal
because First Security must indemnify Western and Federal for
any liability in this matter. Only First Security appears as
a defendant on appeal.
Appellant argues that section 30-3-419(2), MCA allows
her to recover the full face amounts of the converted checks
from Western and Federal. She contends the District Court
erred in determining that her award is anythi.ng less than the
face amount of the checks.
The District Court held that all three defendant banks
converted the respective checks because they paid the checks
without endorsement. Section 30-3-419 (1)(c), MCA provides:
"(1) An instrument is converted when:
"(c) it is paid on a forged endosement."
Payment on a "forged endorsement" includes payment on an
unauthorized endorsement or without any endorsement. Beyer
v. First Nationai Hank of Dillon (Mont. 1 9 8 0 ) , 612 P.2d 1285,
1289, 37 St.Rep. 1035, 1040. The District Court's conversion
holding is not challenged on appeal.
A coll-ecting bank warrants to a d.rawee bank, according
to the terms of section 30-4-207, MCA, that payment is
authorized. The objective of the UCC is to place the loss on
the wrongdoer or, beca.use the wrongdoer is usually
unavailable or unable to pay, upon the party who last dealt
with the wrongdoer. This party is best able to prevent the
conversion by carefully checking endorsements. Perkins State
Bank v. Connolly (5th Cir. 1980), 632 F.2d 1306, 1318. Thus,
although First Security must indemnify drawee banks, the
issue remains the measure of drawees1 liability.
Eleanor argues the District Court failed to apply the
proper measure of damages. The District Court held that
under section 30-3-419(2), MCA the measure of liability for
conversion may be shown to be less than the whole amount of
the converted instruments. Appellant a.rgues that the
District Court was without authority to reduce the amount of
her recovery against drawee banks.
Section 30-3-419 (2) wrovj.des:
" (2) In an action against a drawee under
subsection (1) the measure of the drawee's
liability is the face amount of the instrument. In
- other action under subsection (1) the measure
any
of liability is presumed to be the face amount of
the instrument." (emphasis added}
Official Comment 4 to this section states:
"Subsection (2) . . .
adopts the rule generally
applied to the conversion of negotiable
instruments, that the obligation of any party on
the instrument is presumed . . .
to be worth its
face value. Evidence is admissible to show that
for any reason . .
. the obligation is in fact
worth less, or even that it is without value. In
- - - - the drawee, however, the presumption i
the case of -s
replaced 2 - - absolute liability."
rule of
(emphasis added)
Plaintiff argues that under Official Comment 4, Western
and Federal are absolutely liable for the full amount of the
checks even though the checks are made payable to two
persons. Plaintiff would admit that First Security might be
able to prove her interest is somethins less than the face
amount of the checks, but emphasizes the absolute liability
of the drawee banks. See Annot., 47 A.L.R.3d 537, 542.
F e agree that liability for statutory conversion is
J
undisputed here, but the a.mount of recovery by a joint payee
is not fixed. Neither the statute nor the comment addresses
joint-payee instruments. Eased upon the Official Comment,
plaintiff argues that she is entitled under the statute to
collect $32,600, the face amount of both checks. Plaintiff's
interpretation would allow a windfall to a joint payee who
owns less than the face amount of a check. Under that
theory, wherever there are joint payees, each could recover
the face amount of a check, requiring a drawee bank to pay
two times the amount of the checks, or more. We do not
conclude that the statute requires recovery without regard to
the joint payee's actual interest in the check.
There is some authority for the absolute position of
appellant. In Smith v. General. Casualty Co. of Wisconsin
(Ill. App. 1979), 394 N.E.2d 804, a $7,000 check was made
payable to an attorney and his client as joint payees. The
check was paid over a forged endorsement to the attorney.
The client sued drawee, General Casualty, for conversion.
Before trial, the client received partial reimbursement of
$2,500 from the Illinois Client Security Fund. 394 N.E.2d at
805-06. Drawee contended that the client ' s recovery should
be reduced by the amount already received through the Client
Security Fund. 394 N.E.2d at 807. The Court rejected that
argument, holding that the equivalent of section 30-3-419(2),
MCA sets the measure of damages as the face amount of the
instrument. The Court stated:
"There is no authority for reducing the amount of
recovery thus established by statute, and the
6
general rule regarding collateral sources
[citations omitted] militates against creating such
a rule here. We believe the trial court correctly
awa.rded plaintiff the face amount of the converted
instrument." 394 N.E.2d at 807.
The Court did not determine the relative interests of the
joint payees in the check. The payment was received from a
security fund, a type of insurance, which reasonably should
not have reduced the liability of the drawee. Reduction of
recovery by payment from a collateral source is
distinguishable from determination of a joint payee ' s actual
interest.
First Security argues that the same measure of damages
applies to a drawee bank as to a collecting bank. We do not
agree. It is true that in an action against a collecting
bank, "[elvidence is admissible to show that - any reason
for
such as insolvency or the existence of a defense the
obligation is in fact worth less, or even that it is without
value. " Official Comment 4, section 30-3-419 (2), MCA
(emphasis added). Rut such defenses are not available in
determining the measure of draweesr liability. That measure
is "absolute" liability for the face amount of the check.
Official Comment 4.
We conclude that Western and Federal are absolutely
liable for $32,600, the face amount of the checks. However,
the relative interests of the joint payees in that amount
must be determined. The total of the shares of the joint
payees should add up to $32,600. We have concluded that the
amount of recovery by a joint payee is that amount to which
he is entitled, which may be up to and including the face
amount of the check.
Other courts have employed this concept on similar
facts. In Mueller v. Fidelity-Baltimore National Bank (Md.
1961) 171 A.2d 789, a purchaser of real estate issued
joint-payee checks to a husband and wife. Husband had
inherited the real estate from his father. Husband forged
wife's endorsements and cashed the checks. Wife sued the
cashing bank to recover the amounts of the two checks, but
the trial court denied recovery because it found that wife
had no right to any of the check proceeds. 174 A.2d at 790.
On appeal, wife argued she was a joint owner of the checks
and that joint payees of negotiable instruments are presumed,
absent contrary evidence, to be equal owners. The appellate
court agreed that her recovery depended on her relative
interest in the proceeds of the real estate, hut found she
had released her interest in the real estate prior to its
sale. The lower court's judgment was affirmed. 174 A.2d at
790-92. We agree that a joint payee should not be all-owed to
recover more than his or her interest in converted checks.
We hold that Western and Federal are liable to Eleanor
to the extent of her interest in the two checks. The record
shows that the converted checks were the proceeds of real
property owned by Arthur and Eleanor Stapleton as joint
tenants. In Montana, joint tenants are entitled to equal
shares of joint property absent proof to the contrary.
Marshall v. Minlschmidt (1966), 148 Mont. 263, 269-70, 419
P.2d 486, 489; Henniqh v. Hennigh (1957), 131 Mont. 372, 376,
309 P.2d 1022, 1024-25. Section 30-1-103, MCA states that
"[ulnless displaced by the particular provisions of this code
[the UCC] , the principles of law and equity . . . shall
supplement its provisions. " The principles of joint
ownership are not displaced by the UCC provision here in
question and may he used to supplement the UCC.
We hold that absent proof to the contrary, Eleanor may
recover one-half the amount of the checks. On remand, the
District Court may consider evidence presented by the parties
that Eleanor's proportional interest in the proceeds was
greater or less than one-half. This shall not include
evidence of other transactions or obligations between Eleanor
and Arthur or Eleanor and the banks.
Eleanor argues that section 30-1-106 (1), MCA further
supports her claim for recovery of the face amount. hat
section states:
"The remedies provided hv this code [the UCC] shall
be liberally administered to the end that the
aggrieved party may be put in as good a position as
if the other party had ful-ly performed but neither
consequential or special nor penal damages may be
had except as specifically provided in this code or
by other rule of law."
While we agree with Eleanor that the measure of damages
section should be libera.11~
administered, we note that this
section emphasizes the goal of putting a party in "as good a
position," not in a better position. We believe the
procedure outlined above will accomplish precisely what this
statute demands.
Appellant argues that the District Court erred in
applying collateral estoppel to deny her recovery. She
argues that under either of two suggested tests, collateral
estoppel does not apply. We agree.
In Gessell v. Jones (1967), 149 Mont. 418, 427 ~ . 2 d
295,
we stated:
"'Collateral estoppel' ...
may be considered as a
branch of the doctrine of res judicata but is
distinguishable from the bar to litigation normally
called res judicata. The distinction is that res
judicata bars the same parties from relitigating
the same cause of action while collateral estoppel
bars the same parties from relitigating issues
- - -
which were decided with respect to a different
cause of action . . ..
The bar that arises from
collateral estoppel extends to all questions
essential to the judgment and actua.11~ determined
by a prior valid judgment." 149 Mont. at 421, 427
P.2d at 296 (emphasis added).
Coll-ateral estoppel prevents parties from attempting to
redetermine issues already decided.
The parties cite the four-part test of Smith v. County
of Musselshell. (1970), 155 Mont. 376, 472 P.2d 878, to
determine whether collateral estoppel applies:
"These criteria. are: (1) the parties or their
privies must he the same; (2) the subject-matter of
the action must be the same; (3) the issues must be
the same, and must relate to the same
subject-matter; and (4) the capacities of the
persons must be the same in reference to the
subject-matter and to the issues between them. I'
155 Mont. at 378, 472 P.2d at 880.
First Security makes extended arguments with regard to the
four-part test and suggests certain changes in the collateral
estoppel rule. We do not consider these arguments because we
conclude that part (3) of the test, that the issues must be
the same and relate to the same subject matter, is not met
here. In Rrannon v. Lewis and Clark County (1963), 143 Mont.
200, 387 P.2d 706, this Court concluded that of the four
criteria, identity of issues is the most important. Further,
identity of issues requires that the "precise question" has
been litigated in the prior action. 143 Mont. at 207, 387
P.2d at 710-11. We reiterated these principles in Harris v.
Harris (Mont. 1980), 616 P.2d 1099, 1101, 37 St.Rep. 1696,
The Nevada divorce proceedings did not involve the
"precise issues" litigated in the UCC conversion action. The
Nevada findings listed the various monies and assets of
Eleanor and Arthur Stapleton. No reference was made in the
Nevada proceedings to the right of a conversion action
against Western and Federal. The issues in this action
require a determination of whether the defendant banks paid
checks without joint payees' endorsements and determination
of the amount of the checks and the relative interests of
Eleanor and Arthur, the joint payees. These issues were not
determined in the Nevada proceedings and in fact were not
even considered by the Nevada Court.
We hold that the issues litigated in the Nevada
proceeding and those litigated in this action are not
identical and that collateral estoppel does not bar
plaintiff's recovery.
The judgment of the District Court is reversed. and the
cause is remanded for determination of Eleanor Stapleton's
interest in the checks.
We concur:
-
Chief Justice
Justices
il
&3 y
-
.I
.
'I ~i III~,:[A~~
,thet.
qpn. John M. McCarvel
d7itting for Mr. Justice
Frank B. Morrison, Jr.
Mr. Justice John C. Sheehy, concurring and dissenting:
I dissent to the portion of the majority opinion that
plaintiff is entitled only to one-half of the face amount of
the two checks in the absence of additional proof. Instead,
I would order on remand that judgment be entered in her favor
for the face amount of the two checks.
There is no reason for us to assume that the legislature
did not know what it was doing when it imposed absolute
liability on the drawee bank in section 30-3-419(2), MCA. It
is evident to me that the legislature thought it important to
prescribe full liability for the face of the instrument as a
measure to prevent happening what did happen here, a careless
negotiation in a closed account of unendorsed checks
presented by one of two named pavees. The statute imposes a
heavy liability even though one of the joint payees is a
wrong-doer. It is more important, I believe, and the
legislature surely so believed, to preserve the integrity of
the banking process in handling negotiable instruments for
the benefit of the commercial community. After all, the UCC
was largely produced by bankers, and they saw in the
provision of absolute liability protection to themselves as
well as to the public dealing with banks.
The majority pay large attention to the circumstance of
two names in these checks which is not mentioned in section
90-3-419(2). Here the majority have placed a molehill on the
desk, and managed to make a mountain of j t
.. The solution
should be simple: The banks are absolutely liable for the
face of the in.struments, once. It is the business of the
joint payees how the proceeds should be divided between them.
Section 70-1-311, MCA. Instead, the majority supersede the
p l a i n mandate of t h e lawmakers i n r e f u s i n g t o impose a b s o l u t e
liability.
Although I d i s a g r e e w i t h t h e m a j o r i t y i n whole, I must
p o i n t o u t a l s o t h e i r m i s i n t e r p r e t a t i o n of j o i n t ownership law
i n assuming t h e w i f e i s e n t i t l e d t o a t l e a s t one-half of t h e
proceeds. T h a t r e s u l t i s based. on t h e a s s u m p t i o n t h a t t h e r e
existed here a. j o i n t tenancy interest. No such interest
e x i s t s on t h e r e c o r d h e r e .
E v e r y i n t e r e s t c r e a t e d i n f a v o r o f two o r more p e r s o n s
i s a t e n a n c y i n common, i n c l u d i n g husband and w i f e , unless
t h e i n s t r u m e n t c r e a t i n g t h e i n t e r e s t e x p r e s s l y p r o v i d e s f o r a.
joint tenancy. S e c t i o n 70-1-312, MCA. Here w e know o n l y
t h a t t h e c h e c k s w e r e made p a y a b l e t o two p e r s o n s , w i t h o u t a
c r e a t i o n of j o i n t tenancy. P r o p e r t y i n t e n a n c y i n common may
be owned by the parties i n any p r o p o r t i o n . On t h e o t h e r
h a n d , i f a j o i n t t e n a n c y i s c r e a t e d t h e law d i c t a t e s t h a t t h e
s e v e r a l - p e r s o n s own i n e q u a l s h a r e s . S e c t i o n 70-1-307, MCA.
Thus, t h e b a n k i n g l a w s p r o v i d e t h a t even i n j o i n t tenancy,
t h e whole o f t h e d e p o s i t may b e p a i d t o a n y o f t h e d e p o s i t o r s
demanding t h e same. S e c t i o n 32-1-442, MCA. Here t h e w i f e
had a r i g h t by s t a t u t e t o t h e whole o f t h e f a c e amount o f t h e
checks. She s h o u l d n o t b e p u t t o p r o o f , between h e r and t h e
bank, a s t o h e r ownership o f a p o r t i o n of t h e d e p o s i t .
I concur i n t h e rest of t h e opinion.
'.
.
Justice
I a l s o j o i n t h e m a j o r i t y oPil/nion w i t h t h e e x c e p t i o n t h a t
I j o i n J u s t i c e Sheehy i n h i s d i s s e n t . Judgment s h o u l d b e
e n t e r e d i n f a v o r o f p l a i n t i f f f o r t h e f a c e amount o f t h e two
checks.