Case Name: Maynard Investment Co., Inc., Appellant, v. Marshall McCann et al., Respondents
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1970-02-19
Citations: 77 Wash. 2d 616
Docket Number: No. 39676
Parties: Maynard Investment Co., Inc., Appellant, v. Marshall McCann et al., Respondents.
Judges: 
Reporter: Washington Reports
Volume: 77
Pages: 616–630

Head Matter:
[No. 39676.
En Banc.
February 19, 1970.]
Maynard Investment Co., Inc., Appellant, v. Marshall McCann et al., Respondents.
Jerry T. Haggarty, for appellant.
Erik Froberg, for respondents Legg.
McCord, Moen, Sayre, Hall & Rolfe, John R. Martin, Jr., and Charles Sayre, for respondent The National Bank of Commerce.
Macbride & Sax and D. Gordon Willhite, for respondent Peoples National Bank of Washington.
Reported in 465 P.2d 657.

Opinion:
Rosellini, J.
This appeal involves a question as to the rights and duties of a drawee, a payor, and a transferor of checks negotiated without the endorsement of the payees.
The plaintiff is the drawer of one of the checks in question and is assignee of the drawer of the other check, seeking recovery of the moneys represented by the checks. At the conclusion of the plaintiff's case, a challenge to the sufficiency of the evidence was sustained, findings of fact and conclusions of law were entered, and the cause dismissed. The plaintiff appeals, challenging the right of the court to enter findings and conclusions, challenging certain findings,- and assigning error to the dismissal.
The plaintiff is the owner of a building in Seattle in which the "Round the Clock" restaurant is housed as a tenant. The defendant Marshall McCann is a building con tractor doing business as E. M. Company, who entered into a contract with the plaintiff to remodel the front of the restaurant.
The plaintiff had a cost-sharing agreement on this project with the restaurant owner, Clark's Restaurant Enterprise. The first progress estimate under the building contract was $11,345.03. In payment thereof, the plaintiff issued its check for $10,000 payable to E. M. Company, drawn on the defendant Peoples National Bank of Washington, and Clark's Restaurant issued its check for $1,345.03, payable to E. M. Company, drawn on the defendant The National Bank of Commerce. Both checks were delivered to Mr. McCann personally on September 24, 1964. On the same day, Mr. McCann delivered the checks to defendant William E. Legg, but without endorsement of any kind. Mr. Legg immediately deposited the checks in a "William E. Legg Special Account" in the Ballard Branch of The National Bank of Commerce, where the total amount was held intact until after October 9,1964.
The funds were later transferred by Mr. Legg to the checking account of E. M. Company at the Ballard Branch of Peoples National Bank. The entire proceeds from the two checks in issue were drawn from this latter account by Mr. Legg (an authorized signatory) and used to pay creditors of E. M. Company. However, not all of these funds went to creditors on the restaurant project. As a result the plaintiff was faced with lien claims. The plaintiff received full credit on the construction contract for the amount of the two checks.
It is important to understand the relationship which existed between Mr. McCann 'and Mr. Legg during this time. Prior to the date of this restaurant project, Mr. McCann had bid two other jobs but did not have sufficient bonding capacity to meet the contract terms. Mr. Legg signed as guarantor on Mr. McCann's performance bonds for these two jobs. Financial difficulties arose causing the bonding company to intercede and control the application of Mr. McCann's funds. The bonding company asked Mr. Legg to furnish funds under his guarantee and he deposited $28,000 of his money into the E. M. Company checking account at the Ballard Branch of Peoples National Bank. This account was the only business account of Mr. McCann. Upon deposit of these funds, the bonding company withdrew from its participation and Mr. Legg began to assert some control.
The bank's signature card on the E. M. Company checking account in Ballard Branch of Peoples National Bank, dated September 10, 1964, authorized Mr. Legg to draw checks thereon alone and further authorized him to endorse checks for E. M. Company.
On September 11, 1964, a meeting was held to discuss Mr. McCann's financial plight. In attendance were Mr. McCann, his accountant and his lawyer; Mr. Legg and his accountant. They were concerned, among other matters, that funds in E. M. Company account might be tied up by creditors. The William E. Legg Special Account, into which the two checks in issue were deposited, was created.
On September 16, 1964, Mr. McCann and Mr. Legg executed an agreement under the terms of which Mr. McCann assigned to Mr. Legg the net receivables from various jobs including the Round the Clock restaurant project. On October 9, 1964, this agreement was amended to "release William E. Legg from any obligation to apply any of the proceeds from the accounts and contracts receivable assigned by Marshall P. McCann to Wiliam E. Legg to the payment of any bills attributable to the job generating the funds being applied." It was after the signing of this amendatory agreement and the specific assignment of the restaurant contract moneys that Mr. Legg transferred the entire proceeds of the two checks into the E. M. Company account and then disbursed the funds to creditors of Mr. McCann.
The plaintiff's challenge to the right of the court to enter findings of fact and conclusions of law is not well taken. Upon a challenge to the sufficiency of the evidence at the end of a plaintiff's case in a nonjury trial, the court may rule either as a matter of law without weighing the evidence or weigh the evidence and enter findings and conclusions based thereon. N. Fiorito Co. v. State, 69 Wn.2d 616, 419 P.2d 586 (1966). It is clear that the court did weigh the evidence and properly entered findings of fact and conclusions of law.
The findings of fact challenged by the plaintiff relate to the authority of Mr. Legg to negotiate or transfer the checks without Mr. McCann's endorsement; the understanding that Mr. Legg would create a special account in the Ballard Branch of The National Bank of Commerce; that all moneys from the two checks were transferred to the E. M. Company account in the Ballard Branch of Peoples National Bank and from there used to pay creditors of Mr. McCann; and that such disbursement was with the approval of Mr. McCann. Although Mr. McCann at one point categorically denied the authority of Mr. Legg, there is ample, substantial and independent evidence to support these findings and they will not be disturbed on appeal.
The gravamen of the plaintiff's position on this appeal is that the defendant banks violated their duty to it by honoring and paying checks without obtaining the endorsement of the payee. It cites 10 Am. Jur. 2d Banks § 539, 555 (1963); 5A Michie on Banks and Banking, § 181, at 448 (1950), and cases typified by American Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954). However, compliance with this admitted duty of a drawee bank or a paying bank may be fulfilled without the payee's endorsement. True, a bank honoring or paying a negotiable instrument without the payee's endorsement assumes the burden of proving that the payment was in fact authorized by the payee. As was recognized in Coplin v. Maryland Trust Co., 222 Md. 119, 122, 159 A.2d 356 (1960):
It has long been held that, despite the almost universal custom of requiring a payee to indorse a check before payment, a bank is protected if it pays without indorsement, as long as the payee actually receives the money ordered by the drawer to be paid.
There is conclusive evidence that all of the funds repre sented by these two checks were paid to the creditors of the payee, as the payee and transferee had agreed. The cause against the National Bank of Commerce was properly dismissed.
As to the defendants L egg, we are of the opinion that RCW 9.54.080 compels a different result. At the original hearing before a department of this court, the question of the above statute was raised sua sponte by the court. The court was informed that the issue had not been raised in the trial court and thus it was contended that it could not be considered in the Supreme Court. On rehearing en banc, the issue was argued.
Normally the rule is that an issue or theory not presented to the trial court will not be considered by the Supreme Court for the first time on appeal. However, this rule is not inexorable and has its limitations.
In Morrill v. Title Guar. & Sur. Co., 94 Wash. 258, 162 P. 360, 163 P. 733 (1917), it was held that where the facts are before the Supreme Court, it is not necessary to remand with permission to make a permissible amendment of a cross-complaint but judgment may be given "as the justice of the case requires," under Rem. Code § 406. In Holzer v. Rhodes, 24 Wn.2d 184, 163 P.2d 811, 172 A.L.R. 1173 (1945), it was held that, as a general rule, questions not raised in the court below will not be considered on appeal; however, this rule does not apply when the question raised affects the right to maintain the action. In Wright v. Corbin, 190 Wash. 260, 67 P.2d 868 (1937), it was held that the question of illegality of the contract sued on may be raised at any time, when the fact of its illegality has been made to appear.
In 5 Am. Jur. 2d Appeal and Error § 548-49, 551 (1962), it is said:
The ordinary rule that errors not raised below will not be considered on appeal has been treated as subject to an exception where the matter raised for the first time on appeal was of such a character as to render the judgment of the lower court void, as where the court had no jurisdiction of the subject matter. The principle that an objec tion not taken in the trial court is not available on appeal or review has also been held inapplicable where the record discloses a combination of gross irregularities, including the filing of pleadings in violation of rules of court, the granting of relief upon fatally defective pleadings, and the granting of relief in a second order which has already been granted in a former order.
The general rule has also been denied application where the question raised first on appeal relates to the foundation of the rights of the parties, as where the effect of the application of the rule would be to make the rights of the parties depend upon a statute which the court is judicially bound to know does not govern the case. Where a new trial is ordered, the appellate court may consider questions not technically before it which will arise on a new trial, especially where they may be decisive. Questions necessarily involved in issues raised and litigated in the trial court are open for consideration on appeal or review, even though they were not specifically raised below.
A reviewing court may consider questions raised for the first time on appeal if necessary to serve the ends of substantial justice or prevent the denial of fundamental rights. This rule is peculiarly applicable in criminal cases and especially in capital cases. So, in a case involving deprivation of life or liberty, the court will notice errors appearing upon the record which deprived the accused of substantial means of enjoying a fair and impartial trial, although no exceptions were preserved, or the question is imperfectly presented. However, this exception will not be applied where the failure or refusal to raise the issue below was conscious and intentional, and some courts have expressly declined to recognize any such exception even in criminal cases.
Even though the matter was not raised below, the courts have frequently recognized that error may be considered for the first time on appeal where the matter in question affects the public interest. For example, the court may consider, although raised for the first time on appeal, questions as to the right of one of the parties to waive compliance with the provisions of a mandatory statute. When the question is of such a nature that the present welfare of the people at large, or a substantial portion thereof, is involved, a departure from the general xule is warranted and the court is authorized in its dis cretion to direct its attention to the general welfare, rather than the interests of the parties to the immediate cause.
(Footnotes omitted.)
The exception to the rule is a salutary one. Courts are created to ascertain the facts in a controversy and to determine the rights of the parties according to justice. Courts should not be confined by the issues framed or theories advanced by the parties if the parties ignore the mandate of a statute or an established precedent. A case brought before this court should be governed by the applicable law even though the attorneys representing the parties are unable or unwilling to argue it.
The failure to apply the funds generated by the Round the Clock restaurant project for the materials and labor furnished to the restaurant resulted in the plaintiff's property being subject to lien claims. The agreement of Mr. McCann and Mr. Legg was contrary to the statute and against the public policy of the state.
The payment of the moneys generated by the Round the Clock restaurant project to other creditors constituted a conversion, if not a crime.
RCW 9.54.080 states as follows:
Every person having entered into a contract to supply any labor or materials for the value or price of which any lien might lawfully be filed upon the property of another, who shall receive the full price or consideration thereof, or the amount of any account stated thereon, shall be deemed within the meaning of RCW 9.54.010(3), to receive the same as the agent of the party with whom such contract was made, his successor or assign, for the purpose of paying all claims for labor and materials supplied.
RCW 9.54.010 states, in part:
Every person who, with intent to deprive or defraud the owner thereof—
(3) Having any property in his possession, custody or control, as bailee, . or a person authorized by agreement or by competent authority to take or hold such possession, custody or control, . . . shall secrete, withhold or appropriate the same . to the use of any person other than the true owner or person entitled thereto; . . .
Steals such property and shall be guilty of larceny.
It would appear from the record the defendant William E. Legg actually did not know of the existence of the statute. If he had known of it, it is doubtful that he would have entered into such an arrangement. Nevertheless, every person is presumed to know the law and is bound thereby, and even though his actions may not have been taken with any actual knowledge that he was misappropriating funds held in trust by him, he cannot retain the advantage he receives from violating the statute.
The purpose of the statute is to protect the owner of property which may be subject to a valid lien. Brower Co. v. Noise Control of Seattle, Inc., 66 Wn.2d 204, 401 P.2d 860 (1965).
The statute is an articulation of exemplary and fundamental justice. It recognizes that moneys paid for the services of one person should not be used to pay claims of another. It demonstrates that one should not "rob Peter to pay Paul." It is intended to prevent the injustice of an owner who has paid for material and services being compelled under the lien statute to pay twice.
The fact that the plaintiff was given a bookkeeping credit on his account is immaterial. The failure to use the funds to pay claims of labor and materialmen was a violation of the statute (RCW 9.54.010) — in other words, a conversion of funds which the defendant Legg was obliged to pay out only to creditors of the plaintiff.
So long as any claims of the labor and materialmen were outstanding, the defendant Legg had no right to use any of the money received from the plaintiff to pay claims of others. To the extent that he did so, he converted these funds. The defendants Legg must be held liable to the plaintiff for this conversion of funds held in trust for his benefit. The plaintiff having shown that he paid the con tract price, the burden is properly upon the defendants to show what portion of the funds was used according to the directive of the state.
We affirm the dismissal as to the National Bank of Commerce, but remand the cause as to the defendants Legg to the trial court to ascertain the amount of money that was diverted from the plaintiff's creditors who furnished labor and materials for the construction of the Round the Clock restaurant building. The trial court is directed to enter judgment for the plaintiff accordingly.
Hunter, C. J., Finley, Weaver, and Hale, JJ., concur.
Hamilton, J., concurs in the result.
A complete accounting of Mr. McCann's funds in the hands of Mr. Legg was rendered in a separate action. King County Civil Cause No. 637769.