Title: Liberty Mutual Ins. Co. v. Thunderbird Bank
Citation: 113 Ariz. 375, 555 P.2d 333
Docket Number: 12432-PR
State: Arizona
Issuer: Arizona Supreme Court
Date: September 7, 1976

113 Ariz. 375 (1976) 555 P.2d 333 LIBERTY MUTUAL INSURANCE COMPANY, a corporation, Appellant, v. THUNDERBIRD BANK, Appellee. No. 12432-PR. Supreme Court of Arizona, In Banc. September 7, 1976. *376 Gust, Rosenfeld, Divelbess &amp; Henderson by Harold H. Swenson, Phoenix, for appellant. Jennings, Strouss &amp; Salmon by Thomas J. Trimble and I. Douglas Dunipace, Phoenix, for appellee. CAMERON, Chief Justice. This is a petition for review by plaintiff Liberty Mutual Insurance Company ("Liberty") of an opinion of the Court of Appeals, Division One, 25 Ariz. App. 201, 542 P.2d 39, affirming an order of the trial court denying Liberty's motion for summary judgment and granting the motion of the defendant Thunderbird Bank ("Thunderbird") for summary judgment. The following questions are presented on appeal: The facts necessary for a determination of this matter are as follows. From 1 June 1964 through 24 March 1967, defendant James L. Coffelt was Branch Manager of the Phoenix office of the Charles Bruning Company ("Bruning"). Over an eleven month period between April 1966 and March 1967, Coffelt intercepted some 200 checks drawn by customers of and made payable to Bruning. Each of the intercepted checks, endorsed "Charles Bruning Company by J.L. Coffelt," was cashed by Coffelt at Gene's Modern Market in Glendale, Arizona. At the time of the transactions, the owner and operator of Gene's Modern Market was defendant Arnold Ong. The checks, bearing the further stamped endorsement "Deposit to the account of Gene's Modern Market," were deposited by Ong to the account of Gene's Modern Market at the Thunderbird Bank. *377 The checks were credited to that account and were submitted by Thunderbird for collection through normal banking channels. All of the checks were paid in due course. Coffelt, who appropriated the proceeds of the checks to his own use, in fact had no authority to endorse checks on behalf of Bruning. Thunderbird, during the time it paid the checks, made no effort to determine through Bruning whether Coffelt had such authority. At the time the checks were negotiated, there was in effect between Bruning and Liberty a surety contract under the terms of which Liberty insured Bruning against any pecuniary loss due to the fraud, dishonesty, forgery, theft or embezzlement of Bruning's employees. Upon discovering the loss in this case, Bruning recovered from Liberty the sum of $175,197.13, and assigned to Liberty all of its rights against the various defendants, including Thunderbird. The contract also provided that Liberty became subrogated to the rights of Bruning upon payment of its claim. Liberty thereupon filed a complaint for the amount paid under the contract naming as defendants Coffelt, Ong and Thunderbird, and, except as to Coffelt, relied solely upon the assignment from Bruning as the basis of its right to recovery. Additional pleadings, in the form of cross-claims by Thunderbird against Ong and by Ong against Coffelt, and third party complaints by Thunderbird and Ong against Bruning were subsequently filed. On 22 March 1973, Liberty filed a motion for summary judgment against Thunderbird only. Thunderbird filed a response as well as a motion for summary judgment in its favor. The trial court, after a hearing, granted Thunderbird's motion and entered judgment in favor of Thunderbird and against Liberty. Liberty moved for rehearing which motion was denied and Liberty then appealed. LIBERTY'S RIGHTS AS ASSIGNEE The transactions out of which Bruning's (and Liberty's) claims arose occurred prior to the adoption in Arizona of the Uniform Commercial Code. Consequently, A.R.S. § 44-423 (1956), § 23 of the Uniform Negotiable Instruments Act, is applicable and there is no question under the law as it then existed that Thunderbird was liable to Bruning. The liability of the collecting bank in such a situation was almost universally recognized prior to the adoption of the Uniform Commercial Code, cf. Merchants &amp; Manufacturers Association v. First National Bank of Mesa, 40 Ariz. 531, 14 P.2d 717 (1932). Liberty sued Thunderbird based solely on the assignment of Bruning's claim after Liberty had paid to Bruning the amount of the loss. Thunderbird argues that Liberty has no rights over and above those which it has under the doctrine of subrogation. This is important to Thunderbird because if the matter is to be considered under the equitable doctrine of subrogation, there are certain equitable defenses such as the "compensated surety defense" which would not be available to Thunderbird if the suit is one in law on the contract which has been assigned to Liberty by Bruning. Under appropriate circumstances, the right of a party to be subrogated to the claim of another will arise independent of any contract. D.W. Jaquays &amp; Co. v. First Security Bank, 101 Ariz. 301, 419 P.2d 85 (1966). We have said: A number of courts have gone further than our court and have held that a party seeking to assert a claim as an assignee must demonstrate that it would have been entitled to recover in the absence of an assignment as a subrogee. In the case most heavily relied upon by Thunderbird, the California Supreme Court stated the rule as follows: To the same effect see Louisville Trust Co. v. Royal Indemnity Co., 230 Ky. 482, 20 S.W.2d 71 (1929); Bank of Fort Mill v. Lawyers Title Ins. Corp., 268 F.2d 313 (4th Cir.1959); Castleman Construction Company v. Pennington, 222 Tenn. 82, 432 S.W.2d 669 (1968). In the instant case, if we followed Meyers, supra, Liberty's right under the assignment would be dependent upon its right as a subrogee and not as an assignee. We believe, however, that Liberty is entitled to recovery under the assignment regardless of its rights as a subrogee. Bruning initially had a valid cause of action against Thunderbird. As a general rule, any claim that would survive the death of the plaintiff may be assigned. Employers Casualty Co. v. Moore, 60 Ariz. 544, 142 P.2d 414 (1943) (personal injury actions do not survive and thus are not assignable). And the existence of an equitable right of subrogation is logically irrelevant to the question of whether a party may transfer, by assignment, an otherwise assignable claim. We thus agree with Judge Jacobson who said in dissent: In allowing the claim to be assigned, it necessarily follows that Liberty's rights are measured by the law of contract and not by the equitable doctrine of subrogation. We agree with the Georgia Court of Appeals in a case wherein an employee stole a number of checks drawn by his employer, forged the names of the various payees, and deposited the checks to his account. The plaintiff insurance company paid the value of the checks to the employer under a fidelity bond, receiving in return an assignment of the employer's claim against the drawee bank. On the issue of the insurance company's rights, the court there said: Similarly, in a case involving a suit by the insuror of the payee of certain checks against a bank which cashed the checks over endorsements forged by an employee of the payee, the Iowa court held that the insurance company has a cause of action as an assignee: Having decided that the claim could be assigned and that Liberty may sue in law on the contract, it follows that Thunderbird does not have available the equitable "compensated surety defense." We recognize that the rule imposing liability for the face amount of a check paid over a forged endorsement upon an intermediate collecting bank is harsh, and we are reluctant to extend such liability. However, at the same time, we see no reason why Thunderbird should be relieved of its unquestioned liability merely because the principal plaintiff, Bruning, took the precaution of insuring itself against the risk of loss. Put another way, but for the contract between Bruning and Liberty, *380 Thunderbird would clearly have been liable for the amount of the checks to Bruning; it therefore suffers no prejudice when that liability is shifted from Bruning to Liberty under the terms of the contract between those two parties. Liberty may therefore sue as an assignee of Bruning's claim against Thunderbird, and is not required to demonstrate superior equities before it can recover. ELECTION OF REMEDIES Thunderbird argues in the alternative that Liberty is precluded from relief under the doctrine of election of remedies. The theory here is that Bruning initially had a cause of action against either the collecting bank, Thunderbird, or against the dishonest employee, Coffelt, but not both. Thus, Thunderbird contends Bruning's decision to seek compensation under the fidelity bond constituted an election to claim against or "sue" the employee and Liberty is bound by that election. We disagree. The payee, Bruning, has elected neither to pursue its dishonest employee or the collecting bank, but rather has invoked its rights under the contract between it and Liberty. We do not feel that collecting under a fidelity bond has any significance in terms of the liability of potential defendants to the plaintiff, except insofar as their liability is shifted to the insurance company as the result of an assignment of the underlying claim. Therefore, even assuming that the doctrine of election of remedies would be applicable as to Bruning, we conclude that Bruning in fact made no such election, and Liberty is consequently free to pursue any party which would have been liable to Bruning. Aetna Casualty &amp; Surety Co., supra. Opinion of the Court of Appeals vacated. Judgment of the trial court reversed and remanded for further proceedings consistent with this opinion. STRUCKMEYER, V.C.J., and HAYS, HOLOHAN and GORDON, JJ., concur.