Opinion ID: 2211447
Heading Depth: 1
Heading Rank: 5

Heading: Lack of proximate causation

Text: The Banks also must establish element (2) to avail themselves of the intended payee defense. To establish this element, a defendant must prove that the drawer has suffered no loss or adverse effect on its rights in the transaction that was proximately caused by the bank's improper payment. A bank will escape liability for a drawer's damages that were not caused by the bank's improper payment. Lack of causation can be proved by a showing that the bank's improper payment of a check carried out (or did not interfere with the accomplishment of) the drawer's purpose with respect to that check. Gordon, 280 N.E.2d at 154. In allowing the defense when the bank's improper payment did not proximately cause the drawer's loss, we are recognizing that in some circumstances a bank is completely powerless to control the flow of money from a check, and the bank's improper payment has no effect on the outcome of the transaction such that a proper payment would prevent the damages. An improper payment proximately causes damages from a transaction when the improper payment alters the course of the transaction in a way necessary for the occurrence of damages. In a business transaction, a drawer may choose to write a check in light of the drawer's goals in the transaction. For example, a drawer might write a check jointly to two payees with the plan that the payee not intended to receive the funds would act as a monitor of the transaction, or as a third-party beneficiary. Pacific Metals Co. v. Tracy-Collins Bank & Trust Co., 21 Utah 2d 400, 446 P.2d 303, 305 (1968). When the drawee bank's improper payment prevents the check transaction from achieving the drawer's specific goal in reference to the check, and such obstruction precipitates drawer's damages in the transaction, the improper payment proximately causes the drawer's harm. Cf. Blomquist v. Zions First Nat'l Bank, 18 Utah 2d 65, 415 P.2d 213, 215 (1966) (A well-recognized [rule] is that the depositor has no basis for complaint if what is done with the check carries out his purpose... .). [2] For example, in Atlantic Bank v. Israel Discount Bank, 108 Misc.2d 342, 441 N.Y.S.2d 315 (1981), a drawer wrote a check as an automobile loan jointly to the order of the seller and the buyer-borrower. Underneath the seller's endorsement space on the back of the check the drawer-lender had placed a seller's statement containing a declaration that a portion of the check did not represent proceeds of the loan to the buyer, and a promise by the co-payee-seller to file a lien statement on behalf of the drawer-lender. Id. at 316. The seller in fact never saw or endorsed the check, as the buyer forged the seller's endorsement and deposited the check into his own account. See id. Although the sales transaction went as planned and the seller received payment for the automobile, the drawer-lender was damaged by the seller's failure to file the lien on behalf of the drawer-lender. Id. at 317. Recognizing that the check proceeds reached the intended payee, the court nevertheless denied defendant the intended payee defense because the bank's improper payment proximately caused the drawer's damages in the transaction. Id. at 318. [T]he destruction of [the drawer-lender's] potential lien was the direct and proximate result of the forged [seller] endorsement, and that damage flowing from the loss of the lien is compensable under [the U.C.C.]. Id. The court held the defendant liable even though a properly endorsed check would not have automatically ensured that drawer's lien would have been filed and the damage thus prevented. Id. In our view, the facts of this case are precisely analogous to the facts of the check transaction in Atlantic Bank. In this case, the drawer wrote the check in a particular way in order to protect the interests of the purchaser-co-payee and to prevent the sort of damage that in fact occurred. Ambassador made the checks co-payable to the purchasers precisely so the purchasers would monitor the sales transaction and not endorse the check and release the funds until they received the automobiles. When the banks accepted and paid the checks without the purchasers' valid endorsements, the banks caused to occur just the sort of harm the drawer's check was designed to prevent. Under the facts construed most favorably to the non-moving party, the banks have not demonstrated that they are entitled to judgment as a matter of law under the intended payee defense. We therefore reverse the trial court and remand for further preliminary proceedings or a trial on the merits. DeBRULER, DICKSON and KRAHULIK, JJ., concur. GIVAN, J., dissents without separate opinion.