Opinion ID: 464652
Heading Depth: 1
Heading Rank: 2

Heading: brown's claims

Text: 15 Brown seeks to recover $108,008.07 from the FDIC, as receiver for First National, for the conversion of checks made payable to him. Brown seeks recovery for all of the checks Plake embezzled except the Moran check. Brown has been reimbursed by Moran for this check and, consequently, has suffered no injury with regard to it. Brown also presents an alternate claim to recover the $25,552.78 worth of checks which First National honored after his oral stop order. 16 The parties stipulated that Plake provided forged or unauthorized endorsements to the embezzled checks. A bank has a duty, at its own peril, to authenticate the endorsements on checks presented to it for payment. Tubin v. Rabin, 382 F.Supp. 193, 196, supplemented, 389 F.Supp. 787 (N.D.Tex.1974), aff'd, 533 F.2d 255 (5th Cir.1976). Although Sec. 3.419 in terms refers only to conversion upon forged endorsements, it is established that conversion under Sec. 3.419 also takes place when unauthorized endorsements are accepted. Federal Deposit Insurance Corporation v. Marine National Bank of Jacksonville, 431 F.2d 341, 344 (5th Cir.1970); Ames v. Great Southern Bank, 672 S.W.2d 447, 450 (Tex.1984). First National converted the checks deposited by Plake by not inquiring as to the authenticity of Brown's purported endorsements or as to Plake's authority to endorse checks made out to Brown personally as payee. 17 We must reverse the district court's finding that Brown suffered no loss because the checks were deposited into an account which Brown controlled. Brown did not constructively receive the proceeds of these checks. Constructive receipt is a narrow defense grounded in equity. Generally, it has been applied to prevent a drawer from recovering when he has suffered no loss. Eatinger v. First National Bank of Lewiston, 199 Mont. 377, 649 P.2d 1253 (1982); Tonelli v. Chase Manhattan Bank, 41 N.Y.2d 667, 394 N.Y.S.2d 858, 363 N.E.2d 564 (1977). This equitable defense not only requires that the rightful payee receive the proceeds of the converted check, but also, and this is critical, that the proceeds of the check be applied to the purpose intended by the drawer. Id. 18 Assuming that this equitable defense to conversion was available to a payee, it would not be applicable in this case. Brown was not unjustly enriched. The trust account was established for the benefit of one of Brown's employees. Brown was a trustee. The proceeds of these checks could legally not reach Brown to his personal benefit. But even if it is assumed that the funds did reach Brown beneficially, they certainly were not applied for the purposes intended by the drawers as constructive receipt requires. Moreover, Brown believed that the trust account had been closed. The requirements of constructive receipt are not met. 19 The FDIC argues that Brown's negligent failure to supervise Plake caused First National to pay the embezzled checks. See Tex.Bus. & Com.Code Sec. 3.406. 2 The FDIC contends that if Brown had properly managed his own affairs, Plake would not have been able to effect his embezzlement scheme. Cf. American National Insurance Co. v. Fidelity Bank, N.A., 691 F.2d 464 (10th Cir.1982). The district court agreed and found Brown negligent. We need not determine whether this conclusion is supported by the record or is clearly erroneous, or, indeed, what the effect of negligence would be. 20 Section 3.406 provides that any payee who by his negligence substantially contributed to the making of an unauthorized signature is precluded from asserting that lack of authority against a holder or drawer or payor who has paid the instrument in good faith and in accordance with the reasonable commercial standards of his business. It is a prerequisite to invoking the negligence of the payee as a defense under section 3.406 that the payor have paid the instrument in good faith and in accordance with those standards. See, e.g., Tex.Bus. & Com.Code Sec. 3.406, comment 6; Exchange Bank & Trust Co. v. Kidwell Constr. Co., 472 S.W.2d 117 (Tex.App.1971); East Gadsden Bank v. First City Nat'l Bank of Gadsden, 50 Ala.App. 576, 281 So.2d 431 (1973); Gresham State Bank v. O & K Constr. Co., 231 Or. 106, 370 P.2d 726 (1962). 21 FDIC contends, therefore, that First National acted in good faith and within reasonable commercial standards. Tex.Bus. & Com.Code Secs. 3.406, 3.419(c); Steven-Daniels Corp. v. Commercial National Bank, 673 S.W.2d 651, 653 (Tex.App.1984). This defense must be affirmatively pled and must be established within the context of the facts of the particular case in which it is raised. Continental Bank v. Wa-Ho Truck Brokerage, 122 Ariz. 414, 595 P.2d 206 (App.1979). Although properly raised before the district court, no finding was made with regard to this defense. Nevertheless, we need not remand this claim to the district court for such a finding. The district could not rule that First National acted in accordance with reasonable commercial standards because the FDIC failed to present any evidence as to what reasonable commercial standards are. Ickes v. Bache Halsey Stuart Shields, Inc., 133 Ariz. 300, 650 P.2d 1282 (App.1982). 22 Brown is not entitled to recover the full $108,008.07 he is seeking, however. Of that amount, $25,552.78 was not embezzled until after Brown was informed of Plake's scheme. At that time, Brown was able to stop Plake. Brown's recovery, therefore, must be reduced by this amount. Brown's oral order to First National to cease activity in the trust account was inadequate as a matter of law to shift Brown's responsibility to First National once he discovered the embezzlement. 23 Our conclusion is based both upon Texas law and the particular depository contract in this case. Under Sec. 4.403 of the TBCC 3 a bank is not liable for failing to stop payment on a check unless the customer provides so in writing. Similarly, the depository contract here requires that written notice be given First National concerning any change in who was authorized to write checks on the trust account. Despite these provisions requiring written notice, however, the district court found that First National's failure to abide by Brown's oral order was not in accordance with reasonable commercial standards. 24 Section 4.103 of the TBCC provides that no agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care.... Section 4.103 speaks only of agreements, however. It is, by its own terms, inapplicable to the written notice requirement of Sec. 4.403. Although Sec. 4.103 is certainly applicable with regard to the depository contract, we do not find that First National failed to act in accordance with the good faith and ordinary care requirements of Sec. 4.103. We find that the district court's decision to the contrary is unsupported by the record or by the law. No evidence was introduced as to what reasonable commercial standards are in this context. Moreover, a provision requiring written notice be provided to a bank can hardly be called unreasonable as it is already established as law by Sec. 4.403. We, therefore, reverse the district court on this issue. We find that Brown should recover $82,455.29 from the FDIC.