Court Opinion

ID: 9703238
Source: CourtListenerOpinion
Date Created: 2023-08-25 23:46:57.316466+00
Date Added: 2024-06-11T18:21:46.724282
License: Public Domain

PARKER, Circuit Judge
(concurring specially).
I concur in the result of the majority decision, but differ on the question of whether this is a case for the application of SDCL 57-13-13 (UCC 3-406) for the reasons hereinafter set forth.
APPLICATION OF UCC 3-406
The threshold question in evaluating First Federal’s first theory of Recovery is whether the drawer’s signatures were “authorized” or “unauthorized.” If “unauthorized” then the case will be governed by SDCL 57-13-13 (UCC 3-406), as urged by the Bank, rather than the common-law rule urged by First Federal.
“Unauthorized signature” is defined by the Code as “one made without actual, implied or apparent authority and includes a forgery.” SDCL 57-1-2(39) (UCC 1-201(43)).
Obviously, Mary Apland had actual authority to affix the facsimile signature of First Federal’s then vice-president, Frank Everett, to its check blanks pursuant to her prescribed duties as one of its tellers. Equally obvious, however, is the fact that she did not have actual authority to do so pursuant to a scheme to defraud First Federal — at this juncture her use of the facsimile signature of Frank Everett became a forgery.*
*288Characterizing the drawer’s signature on these checks as forgeries does not automatically brand them as “unauthorized” under the Code. They can still be “authorized” if blessed by the protective aura of apparent authority. SDCL 57-1-2(39) (UCC 1-201(43)) (defining “unauthorized” signature).
Apparent authority does not depend upon actual authority for its existence and may exist without it. On the other hand, apparent authority often exists in concert with actual authority and may or may not be identical to it. Apparent authority can also survive the demise of its frequent companion, actual authority. All of this is true because apparent authority rests upon manifestations flowing from the principal to the third person as opposed to actual authority which derives from representations by the principal to his agent. 3 Am.Jur.2d Agency §§ 73-76; Restatement of Agency 2d, § 8 Comment a, § 27 Comment a, and § 49 Comment g; SDCL 59-1-5; SDCL 59-3-3; SDCL 59-6-3.
By virtue of its everyday business practice of issuing its checks bearing a facsimile signature, First Federal manifested to the Bank and the other members of the business community of Sioux Falls that its employees who affixed these facsimile signatures to its checks were authorized to do so. The Bank and others relied on this tacit representation and routinely honored such checks. Their making and issuance therefore rested upon both actual and apparent authority. The evidence fails to show that the Bank had actual knowledge of Mary’s peculations or was aware of facts sufficient to charge it with constructive knowledge. Therefore the apparent authority for the making and issuance of the checks in question continued to exist in spite of the fact that Mary violated her actual authority in making these checks. Despite their being forgeries, the signatures were not “unauthorized” because they were vouched for by the continuation of apparent authority. Since the signatures of the drawer of the checks in question were thus “authorized” under the Code, SDCL 57-1-2(39) (UCC 1-201(43)), the decision of this case is not governed by SDCL 57-13-13 (UCC 3-406).
LIABILITY UNDER COMMON LAW
Since SDCL 57-13-13 (UCC 3-406) does not apply, the rule of First Federal’s first theory must be looked to for a resolution of the question of liability. Again the rule is stated as follows:
Where a check is drawn to the order of a bank to which the drawer is not indebted, the bank is authorized to pay the proceeds only to persons specified by the drawer; it takes the risk in treating such a check as payable to bearer and is placed on inquiry as to the authority of the drawer’s agent to receive payment.
9 C.J.S. Banks and Banking § 340; 10 Am. Jur.2d Banks § 529; and cases previously cited. No claim is made that First Federal was at any time either indebted to the Bank or was a customer of it.
*289This rule is subject to an important exception: where the drawer of a check drawn to the order of a bank has clothed his agent with apparent authority to receive the proceeds of that check and the payee bank in reliance upon such apparent authority pays the proceeds to the agent or otherwise appropriates them to uses directed by the agent contrary to his actual authority, the payee bank is not liable to the drawer for such diversion of the proceeds. 10 Am. Jur.2d Banks § 560, and cases previously cited.
In determining the effect of the above rule and its exception upon the outcome of this case, it becomes necessary to reexamine the situation as it existed with respect to First Federal’s custom and practice concerning its checks like the ones in question and the effect this had on the Bank’s dealings with our villain, Mary Apland.
When requested to do so by one of its customers, First Federal made its check payable to a third party and gave the check to the customer with the understanding that the customer was authorized to control the disposition of the check’s proceeds. Neither the customer’s name nor the nature of the .transaction was noted on such checks. This practice was instituted by First Federal for the convenience of its customers. The members of the financial and business community of Sioux Falls were aware of this practice. The participation of the third-party payees in this practice was approved and encouraged by First Federal.
In instances where First Federal did not have direct business dealings with the payee bank, the transaction usually involved the transfer of funds or payment of a loan by a mutual customer of the payee bank and First Federal. Thus, payee banks routinely and without inquiry of First Federal cashed these checks and disbursed their proceeds as directed by the customers who presented them.
In such a transaction, First Federal’s customer became its agent with both actual and apparent authority to direct the disposition of the proceeds of these third-party checks (SDCL 59-3-2; SDCL 59-3-3), and if the payee bank acted in good faith and without negligence, First Federal would be bound by the acts of its customers. SDCL 59-6-3.
“Good faith” is defined by the Code as “honesty in fact in the conduct or transaction concerned.” SDCL 57-1-2(19) (UCC 1-201(19)). The evidence in this case does not reveal any lack of “honesty in fact” on the part of the Bank.
The following factors combined to provide Mary Apland with a near-perfect setting for executing her devious scheme: her employment as a teller with First Federal which furnished her with knowledge of its internal procedures and access to the signature on its checks; its practice of issuing third-party checks to its customers and authorizing them to direct disposition of the proceeds; its encouragement and approval of the participation by payee banks on behalf of their mutual customers; and, Mary’s private status as a customer of the Bank.
By taking advantage of this favorable climate, Mary Apland was able to deceive the Bank by posing as a customer of First Federal with apparent authority to direct the diversion of the proceeds of the checks in question to her own use. The Bank was unaware of the nature of Mary’s employment with First Federal or other facts which were sufficient under the circumstances to place it on inquiry as to her authority. Therefore the Bank was not negligent in treating these checks as bona fide transactions pursuant to First Federal’s well established practice. This being the case, the Bank is absolved from liability to First Federal by virtue of the previously stated exception to the common-law rule under which First Federal seeks recovery on its first theory.

 Since “forgery” is not defined by the Uniform Commercial Code, local law controls. SDCL 57-1-25 (UCC 1-103). “Forgery” is defined by SDCL 22-39-36 as follows: “Any person who, with intent to defraud, falsely makes . . . a written instrument of any kind ... is *288guilty of forgery.” Where an agent who is authorized to sign his principal’s name to a check or other writing in certain transactions does so in an unauthorized transaction and with intent to defraud his principal, the signature becomes a forgery. Carlsen v. State, 127 Neb. 11, 254 N.W. 744 (1934); People v. Giguiere, 163 Cal.App.2d 453, 329 P.2d 512 (1958); People v. Caldwell, 55 Cal.App.2d 238, 130 P.2d 495 (1942); Baldwin Motors, Inc. v. Aetna Casualty and Surety Co., 24 Conn.Sup. 498, 194 A.2d 709 (1963). See; Anderson, Uniform Commercial Code Vol. 1, § 1-201:58 at page 103 where the author, in discussing the difference between the Code definitions of “genuine” and “unauthorized,” states; “While the Code defines ‘unauthorized’ to include forgery, this does not require a converse implication inconsistent with the foregoing text that a forgery embraces an unauthorized signature. To the contrary, it indicates the necessity to deal with two distinct situations. The one in which a person goes beyond his authority as agent, if any, in making a signing but in his own mind intending to act as an agent. The other in which a person knows that he is not authorized to act as agent and signs the name of another with the criminal intent to defraud by so doing. That is to say, while the conscious wrongdoer in the above situation commits forgery, the person innocently exceeding his authority is merely unauthorized and does not commit forgery.”