Case Title: BEYER v FIRST NATIONAL BANK OF DIL

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1980-06-20T00:00:00Z

Document:
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 M r . J u s t i c e Gene B. Daly delivered t h e Opinion of t h e Court. P l a i n t i f f appeals from a judgment entered i n t h e D i s - t r i c t Court 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 , the Honorable Frank E. B l a i r , presiding, i n favor of defendant F i r s t National Bank of Dillon (Bank), i n an a c t i o n by p l a i n t i f f t o recover on a check allegedly improperly negotiated by t h e Bank and deposited i n a j o i n t account controlled by plain- 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 the names of p l a i n t i f f Fred Beyer and h i s then wife, Peggy Beyer. The account w a s designated as a j o i n t tenancy with r i g h t of survivorship. The wife, Peggy Beyer, executed t h e signature card which evidenced t h e account and made an opening deposit t h e r e i n of money and checks belonging t o herself and her husband. She caused t o be ordered, and t h e r e a f t e r received, printed personal checks embossed "Fred and Peggy Beyer, 35 North Idaho No. 2, Dillon, Montana 59725." Peggy Beyer executed t h e signature card required by t h e Bank which evidenced t h e account. P l a i n t i f f d i d not s i g n t h e card; however, a typed notation on t h e card read, "Fred Beyer i n t h e h o s p i t a l , w i l l sign card l a t e r . " Fred Beyer never d i d sign t h e signature card. From t h e d a t e t h e account w a s opened on August 8, 1974, u n t i l it w a s closed on June 30, 1975, p l a i n t i f f and h i s wife used t h e checking account. Monthly bank statements received by p l a i n t i f f and h i s wife a t t h e i r home address indicated normal checking and deposit a c t i v i t y over a period of some t e n months while t h e account 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 checks a g a i n s t the account. Both p l a i n t i f f and h i s wife individually and j o i n t l y deposited funds t o t h e account from various sources, includ- i n g checks payable s o l e l y t o Peggy Beyer as wages, unemploy- ment insurance, and h o s p i t a l i z a t i o n insurance, checks pay- a b l e s o l e l y t o p l a i n t i f f as wages, and checks payable t o p l a i n t i f f and t o h i s wife, which w e r e received from plain- t i f f ' s parents. The D i s t r i c t Court found t h a t a l l t h e d e p o s i t s made and checks drawn on t h i s account w e r e made with the knowledge, consent and permission of p l a i n t i f f . P l a i n t i f f ' s objection t o t h e manner i n which the account w a s u t i l i z e d apparently developed when t h e couple s t a r t e d having m a r i t a l d i f f i c u l t i e s . On o r about May 10, 1975, p l a i n t i f f and h i s wife received from an insurance company a check payable t o them and t o an attorney i n Great F a l l s , Montana. This check represented t h e proceeds of t h e settlement of a personal 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 sustained i n a J u l y 25, 1974, motorcycle accident. 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 hospitalized u n t i l mid-October 1974, during which t i m e h i s wife opened Checking Account No. 2-227-7 on August 8, 1974. 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 settlement 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 wife a s p l a i n t i f f s a g a i n s t Peggy Beyer's insurance company under the uninsured motorists coverage of t h e i r motor v e h i c l e l i a b i l i t y policy. 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 firm t o prosecute t h e a c t i o n on t h e i r behalf. Following t h e r e c e i p t of t h e insurance 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 wife, and returned it t o t h e i r attorney, who w a s a l s o a payee, t o be negotiated by the attorney and disbursed by him pursuant t o t h e con- tract of employment. O n o r about May 13, 1975, p l a i n t i f f and h i s wife re- ceived a check from t h e i r attorney i n t h e amount of $5,899.00, which was t h e i r share of t h e proceeds of t h e personal i n j u r y settlement. The check w a s payable t o "Fred Beyer and Peggy Beyer." It was deposited t o the account by Peggy Beyer without being endorsed by her o r by t h e p l a i n t i f f . The Bank negotiated t h i s check a f t e r a Bank employee stamped t h e check with the following endorsement: "Deposited t o t h e account of t h e within named payee i n accordance with payee's i n s t r u c t i o n . Absence of t h e endorsement guaranteed by the F i r s t National Bank of Dillon, 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 with t h e s p e c i f i c knowledge and consent of 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 received, t h e couple agreed t h a t it would be deposited t o t h e i r account a t t h e bank and checks drawn f o r t h e payment of t h e i r outstanding b i l l s and f o r t h e opening of a j o i n t savings account. Peggy Beyer immediately proceeded t o draw checks on t h e account i n payment of t h e b i l l s . These checks represented payments f o r r e n t , medical 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 supplies, c r e d i t card invoices charged t o both p a r t i e s , and t h e repayment of a $1,780.10 loan which was owed by Peggy Beyer on t h e family automobile, a l l of which aggregated t h e s u m of $3,333.51. A t t h i s t i m e , Peggy Beyer opened a j o i n t savings account t o which she deposited t h e sum of $1,000. The signature card evidencing t h e savings account was likewise signed only by Peggy Beyer, b u t t h e t r i a l c o u r t found t h a t it w a s opened with t h e knowledge, consent and a t t h e d i r e c t i o n of plain- t i f f . Likewise, t h e c o u r t found t h a t Peggy Beyer signed a l l t h e checks i n payment of t h e outstanding b i l l s with plain- t i f f ' s consent 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 Penn- sylvania where he had formerly resided. He did not return to Montana until the trial of the dissolution of his mar- riage 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 judg- ment 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 during the ten-month existence of t h e j o i n t account d i d p l a i n t i f f ever 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 with r e s p e c t t o the depositing of funds o r t h e withdrawal of funds, and t h a t he affirmatively p a r t i c i p a t e d i n both t h e depositing and disbursement of funds. I t was not disputed t h a t Fred Beyer never signed the signature card o r wrote any checks a g a i n s t t h e account. Gary Kruger, cashier of t h e defendant Bank and t h e only bank employee c a l l e d a s a witness a t t r i a l , t e s t i f i e d t h a t Fred Beyer, n o t having signed t h e signature card, was never authorized t o draw checks on Account No. 2-227-7 and t h a t Peggy Beyer was t h e only person who could draw a check on t h e account. Nevertheless, when asked whether the Bank would have honored a check w r i t t e n on t h e account by Fred Beyer, Kruger s t a t e d , "possibly w e would have." H e admitted, however, t h a t it 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 signature w a s a forgery o r not. This testimony was apparently t h e b a s i s of t h a t p a r t of the t r i a l c o u r t ' s Finding No. 9, which s t a t e s : "While the P l a i n t i f f never signed a check him- s e l f , the Court f i n d s t h a t he could have, and t h a t any such checks drawn by him would have been paid, because of the manner, h a b i t s and usage of t h e account 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 Fred Beyer d i d not endorse t h e $5,899 check and t h a t he d i d n o t authorize o r i n s t r u c t t h e Bank t o deposit 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 authorize t h e Bank t o endorse t h e $5,899 check, b u t t h e Bank nevertheless stamped i t s guaranteed endorsement on t h e check and nego- t i a t e d it. The District Court concluded t h a t Checking Account No, 2-227-7 w a s established and owned by p l a i n t i f f and h i s wife and t h a t both were e n t i t l e d t o draw funds on the account. Furthermore, the proceeds of the $5,899 check w e r e t h e j o i n t property of p l a i n t i f f and h i s wife as tenants i n common, and it was deposited 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 Court concluded t h a t p l a i n t i f f was equit- ably estopped from denying h i s j o i n t and b e n e f i c i a l owner- s h i p of t h e account and t h e proceeds deposited and withdrawn therefrom by reason of h i s affirmative acts, conduct and s i l e n c e and t h e Bank's r e l i a n c e thereupon t o i t s detriment. The District Court 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 of laches and t h a t he had sustained 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 enrichment. I n t h e 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 deposited t o t h e account. From t h i s judgment, plain- t i f f appeals. The i s s u e on appeal is whether t h e judgment of t h e D i s - trict Court i s supported by s u b s t a n t i a l c r e d i b l e evidence. Although t h e check a t i s s u e i n t h i s case is a nonnego- t i a b l e instrument payable 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 the Uniform Commercial Code make it clear t h a t Chapter 3 of the U.C.C. a p p l i e s t o transactions involving t h i s check, with t h e exception t h a t t h e r e can be no holder i n due course of such an instrument. I n p a r t i c u l a r , t h i s check i s governed by s e c t i o n 30-3-116, MCA, which provides: "Instruments payable t o ---- two o r more persons: An - instrument payable -- t o t h e order of --- two o r more persons : " (a) i f i n t h e a l t e r n a t i v e is payable t o any one of them and may be negotiated, discharged o r enforced by any-of them who has possession of it; a l l of them and m a y be negotiated, discharged, ---- o r enforced only 5 all of them." (Emphasis - - - - . --- added. ) Since the check i s payable only t o "Fred Beyer and Peggy Beyer" together, subsection (b) a p p l i e s and "both must endorse i n order t o negotiate t h e instrument, although one, of course, may be authorized t o sign f o r t h e other." 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 wife does n o t authorize one t o sign f o r t h e other: "Normally, when a check is made payable t o husband and wife, it is considered t o be payable t o them j o i n t l y and t h e check must be endorsed by both of them . . ." Murray, J o i n t Payee Checks--Forged - and Missing En- - dorsements, 78 Comm. L. J. 393, 395 (1973). It i s undisputed t h a t n e i t h e r Peggy Beyer nor Fred Beyer endorsed t h e $5,899 check, and t h a t it was deposited t o Account No. 2-227-7 by Peggy Beyer and stamped with t h e Bank's guaranteed endorsement. A s a general proposition, "Courts i n a number of cases have held o r recognized t h a t a cashing o r c o l l e c t i n g bank which pays a check drawn t o j o i n t payees, o t h e r than partners, without obtaining the authentic endorsement of a l l such payees, i s l i a b l e t o a nonsigning payee f o r t h e value of h i s i n t e r e s t i n t h e check, unless t h e nonsigning payee has authorized o r r a t i - f i e d such payment." Annot., 47 A.L.R.3d 537, 543 (1973). See Edwards Co. Inc. v. Long Island Trust Co. (1973), 75 The depository o r c o l l e c t i n g bank's l i a b i l i t y t o a non- endorsing copayee has been founded on a conversion theory: "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 en- dorsements constituted a conversion of the in- strument 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, 0 1 1 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. Bank (5th Cir. 1970), 431 F.2d 341; Cf., Insurance Co. of North America v. Atlas Supply Co. (1970) , 121 Ga.kpp. 1, 172 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 co- payee. . ." Annot., 47 A.L.R.3d 537, 541 (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 deposi- tory or collecting bank, who has in good faith and in accordance with the reasonable commer- cial 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 C o m r n . 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 rea- sonable 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 com- mercial standards. Without again r e c i t i n g the f a c t s i n t h i s case, w e f i n d t h e conclusions of the District Court t o be supported by s u b s t a n t i a l evidence. Arrowhead, Inc. v. Safeway Stores (1978) - Mont. , 587 P.2d 4 1 1 , 35 St.Rep. 1830. I n 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 conclusion t h a t p l a i n t i f f - a p p e l l a n t Fred Beyer i s equitably estopped 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 of h i s acknowledgement and use of the account over a period of t i m e , and t h e Bank's r e l i a n c e thereupon i n c r e d i t i n g t h e $5,899 check t o t h a t account. Section 26-1-601(3), MCA; Howeth v. D. A. Davidson & Co. (1973), 163 Mont. 355, 517 P.2d 722; City of B i l l i n g s v. Pierce Pa.c!;ing Ca. (1945), 117 Mont. 255, 161 P-2d 636; Mundt v. Mallon (1938), 106 Mont. 242, 76 P.2d 326, 329. Appellant cannot be heard t o complain t h a t he lacked a u t h o r i t y t o draw checks on t h e account when he could have remedied t h a t s i t u a t i o n by t h e simple expedient signing of the signa- t u r e card. The judgment of t h e D i s t r i c t CourtJs affirmed. ,L J u s t i c e d f Gid)L W e concur: %A, P-4- Chief J u s t i c e