Case Name: INSURANCE COMPANY OF NORTH AMERICA v. MANUFACTURERS BANK OF SOUTHFIELD, NA
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1983-05-20
Citations: 127 Mich. App. 278
Docket Number: Docket No. 62062
Parties: INSURANCE COMPANY OF NORTH AMERICA v MANUFACTURERS BANK OF SOUTHFIELD, NA
Judges: Before: V. J. Brennan, P.J., and M. J. Kelly and J. Graves, Jr., JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 127
Pages: 278–286

Head Matter:
INSURANCE COMPANY OF NORTH AMERICA v MANUFACTURERS BANK OF SOUTHFIELD, NA
Docket No. 62062.
Submitted December 20, 1982.
Decided May 20, 1983.
Insurance Company of North America (INA) and the Hartford Insurance Company each issued fidelity insurance policies to Anchor National Life Insurance Company, insuring Anchor against losses resulting from employee dishonesty. Anchor subsequently filed claims with INA and Hartford for loss in connection with three checks that the Manufacturers Bank of Southfield, N.A. paid on forged indorsements of an agent of Anchor. INA and Hartford paid the claims of Anchor and were assigned the right to subrogate against Manufacturers Bank. INA and Hartford brought suit in Oakland Circuit Court against Manufacturers Bank for the amount of the three checks with forged indorsements paid by the defendant. The court, Hilda R. Gage, J., granted accelerated judgment for the defendant based on the three-year period of limitation for actions involving injury to persons or property. The plaintiffs appealed alleging that the trial court erred because (1) payment of a check on a forged indorsement is not an injury to persons or property within the meaning of the statute providing for a three-year limitation period, (2) they should have been allowed to assert their contract claim so that the action would be within the six-year limitation period for contract actions, and (3) even if the case involved injury to property, accelerated judgment should not have been granted because the suit was started less than three years after the forgery was discovered. Held:
1. The trial court did not err in finding that payment of a check on a forged indorsement is an injury to persons or property within the meaning of the statute defining a limitation period. Payment on a forged indorsement is an injury to property where the action is for conversion or even implied contract.
References for Points in Headnotes
12 Am Jur 2d, Bills and Notes §§ 1038, 1044.
18 Am Jur 2d, Conversion § 76.
51 Am Jur 2d, Limitation of Actions § 124.
18 Am Jur 2d, Conversion § 1.
51 Am Jur 2d, Limitation of Actions § 101.
15A Am Jur 2d, Commercial Code § 3.
2. Payment on a forged indorsement is injury to property and the three-year period of limitation, not the six-year period, applies, even where suit is brought on an implied contract theory.
3. Plaintiffs’ claim that accelerated judgment should not have been granted because the suit was brought less than three years after the forgery was discovered is without merit. The period of limitation began to run when the checks were paid on the forged indorsement, not when the forgery was discovered.
Affirmed.
M. J. Kelly, J., concurred separately. He agreed that the plaintiffs’ claim was governed by the three-year period of limitation rather than the six-year period for contract actions. He suggested that the Supreme Court review the issue because Michigan law differs from that of many jurisdictions on the issue, which is contra to the purpose of the Uniform Commercial Code.
Opinion of the Court
1. Limitation of Actions — Negotiable Instruments — Checks — Injury to Property.
Payment on a forged indorsement on a check is an injury to property within the meaning of the statute limiting actions for damages for injuries to property to three years (MCL 600.5805[8]; MSA 27A.5805[8]).
2. Limitation of Actions — Checks — Forged Indorsements.
The period of limitation for an action based on the payment on a check with a forged indorsement begins to run when the check is paid, not when the forgery is discovered (MCL 600.5805[8]; MSA 27A.5805[8]).
Concurrence by M. J. Kelly, J.
3. Conversion — Injury to Property.
A conversion is within the legal concept of an injury to property.
4. Limitation of Actions — Implied Contract.
An implied contract theory is subject to the same three-year period of limitation applicable to other actions initiated to recover damages for injury to persons or property where the nature of an action to recover damages for injury to property is a duty imposed by law.
5. Statutes — Uniform Commercial Code.
A major purpose of the Uniform Commercial Code is to make uniform the law among the various jurisdictions.
Surridge, Afton, Young & Taylor (by C. Bruce Taylor), for plaintiffs.
Schier & Deneweth, P.C. (by Ronald A. Deneweth), for defendant.
Before: V. J. Brennan, P.J., and M. J. Kelly and J. Graves, Jr., JJ.
Circuit judge, sitting on the Court of Appeals by assignment.

Opinion:
Per Curiam.
Plaintiffs commenced this action against defendant Manufacturers Bank of South-field, N.A., to recover, as subrogee of the payee, the amount of three checks paid by defendant on forged indorsements. The trial court granted defendant's motion for accelerated judgment brought pursuant to GCR 1963, 116.1(5), on the ground that plaintiffs' action was barred by the period of limitation under MCL 600.5805(8); MSA 27A.5805(8). Plaintiffs appeal the trial court's decision as of right.
Plaintiffs' complaint alleged that plaintiffs issued fidelity insurance policies to Anchor National Life Insurance Company (ANLIC) to insure ANLIC against losses resulting from employee dishonesty. Pursuant to those policies, ANLIC made claims to plaintiffs for the loss of $98,391 in connection with checks that defendant bank paid on the forged indorsements of Robert Corsaut, an agent of ANLIC. Plaintiffs paid the claims of ANLIC and were assigned the right to subrogate against defendant.
At the hearing on the motion for accelerated judgment, the trial court confronted the issue of whether the three-year period of limitation MCL 600.5805(8); MSA 27A.5805(8), or the six-year period of limitation, MCL 600.5813; MSA 27A.5813, should apply to plaintiffs' action. Relying on Continental Casualty Co v Huron Valley National Bank, 85 Mich App 319; 271 NW2d 218 (1978), the trial court held that plaintiffs' action was barred by the three-year period of limitation.
Plaintiffs first argue on appeal that payment of a check on a forged indorsement is not an injury to persons or property within the meaning of MCL 600.5805(8); MSA 27A.5805(8). We reject this argument. In Continental Casualty, supra, this Court held that payment on a forged indorsement was an injury to property where the action was for conversion. Continental Casualty, supra, p 324. The dissenting opinion in that case agreed with that part of the majority opinion. Further, the majority opinion assumed that the injury was to property if the action was based upon an implied contract theory. Continental Casualty, supra, p 325.
MCL 440.3419(l)(c); MSA 19.3419(l)(c) provides in relevant part:
"Sec. 3419. (1) An instrument is converted when
"(c) it is paid on a forged indorsement."
Paragraph 3 of that section further provides:
"(3) Subject to the provisions of this act concerning restrictive indorsements on a representative, including a depositary or collecting bank, who has in good faith and in accordance with the reasonable commercial 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."
Regardless of whether the "not liable in conversion or otherwise" language of ¶ 3 allows an action in contract, or not, Official UCC Comments 2 and 3 to MCL 440.3419; MSA 19.3419 indicate that payment on a forged indorsement is an injury to property:
"2. A negotiable instrument is the property of the holder. It is a mercantile specialty which embodies rights against other parties, and a thing of value. This section adopts the generally recognized rule that a refusal to return it on demand is a conversion. The provision is not limited to drafts presented for acceptance, but extends to any instrument presented for payment, including a note presented to the maker. The action is not on the instrument, but in tort for its conversion.
"3. Subsection (l)(c) is new. It adopts the prevailing view of decisions holding that payment on a forged indorsement is not an acceptance, but that even though made in good faith it is an exercise of dominion and control over the instrument inconsistent with the rights of the owner, and results in liability for conversion."
See also White & Summers, Uniform Commercial Code (1980), § 15-4, pp 585-586.
Plaintiffs next argue that they should have been allowed to assert their contract claim so that their action would, therefore, be within the six-year period of limitation provided in MCL 600.5807(8); MSA 27A.5807(8) or MCL 600.5813; MSA 27A.5813. Plaintiffs assume that the majority opinion in Continental Casualty held that the plaintiff's only remedy in that case was under a conver sion theory. However, a close reading of the majority's decision indicates that it did not hold that an implied contract theory could not be raised, but rather that an action in implied contract is still controlled by the three-year period of limitation where the action is for injury to property. The court stated:
"Even if plaintiff's 'implied contract' theory had been properly raised below and even assuming the theory has merit, we would still conclude plaintiff's action is barred by the three-year statute of limitations. Where, as here, there is no express contract or express promise and defendant's liability, if any, is implied by law, an action for injury to persons or property is controlled by the three-year statute regardless of whether the action is labeled as one in tort or implied contract. Huhtala v Travelers Ins Co, 401 Mich 118; 257 NW2d 640 (1977), Case v Goren, 43 Mich App 673, 682; 204 NW2d 767 (1972)." 85 Mich App 325.
Since payment on a forged indorsement is injury to property, the three-year statute of limitations applies where suit is brought on an implied contract theory. Huhtala v Travelers Ins Co, 401 Mich 118, 126-127; 257 NW2d 640 (1977).
Plaintiffs' final argument is that, even if this case involves an injury to property, accelerated judgment should not have been granted because the suit was started less than three years after the forgery was discovered. Plaintiffs' argument is meritless because the period of limitation begins to run when the checks are paid on the forged indorsement, not when the forgery is discovered. Continental Casualty, supra, p 325. Application of a date of discovery rule to actions by a payee to recover for payment on a forged indorsement would frustrate the strong public policy of finality in commercial transactions. Fuscellaro v Industrial National Corp, 368 A2d 1227 (RI, 1977).
Affirmed.