Court Opinion

ID: 9633497
Source: CourtListenerOpinion
Date Created: 2023-08-22 11:49:33.520001+00
Date Added: 2024-06-11T18:08:36.526945
License: Public Domain

JOHNSON, Justice.
Following the issuance of the opinion in this case, the Court granted rehearing to consider whether the Neibaurs should be precluded under I.C. § 28-3-406 from asserting Palmer’s unauthorized indorsement. This issue was raised before the magistrate judge, on appeal to the district judge, and on appeal to this Court. We did *734not specifically address the issue in our original opinion.
The statute on which Valley Bank bases its argument provides:
28-3-406. Negligence contributing to alteration or unauthorized signature.— Any person who by [that person’s] negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack or authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee’s or payor’s business.
I.C. § 28-3-406.
Valley Bank asserts that there was conclusive evidence of negligence on the part of the Neibaurs that substantially contributed to Palmer’s unauthorized indorsement. Valley Bank also contends that there is unrebutted evidence that in paying the Neibaurs’ check by issuing a cashier’s check payable to the same payee they complied with reasonable banking standards.
The magistrate judge made the following finding of fact:
7. At the time the check was tendered at the bank, no identification of the gentleman presenting the check was required by the bank employee. The employee did, however, attempt two telephone calls to a number given her, purporting to be his business. There was no answer. No other attempts to contact his purported employer or to establish his identity or authority were made.
The magistrate judge reached this conclusion of law:
2. Valley Bank was negligent by failing to make inquiries which a reasonably prudent person would make incident to this transaction. There was a complete failure to ascertain the identity and also the agency or authority of the person cashing the Neibaur check.
The bank had a duty to inquire as to Mr. Palmer’s identity and authority. Absent such inquiry and confirmation, the indorsement is unauthorized under Idaho Code 28-3-404, and Ryan Neibaur is entitled to receive money from Valley Bank for the amount of his check Number 30[4],
Although the magistrate judge phrased this ruling in terms of Valley Bank’s negligence, since Valley Bank had argued that I.C. § 28-3-406 precluded the Neibaurs from asserting Palmer’s lack of authority, we construe the ruling that Valley Bank was negligent to be, in effect, a ruling that Valley Bank did not pay the check in accordance with reasonable banking standards.
Valley Bank contends that the unrebutted testimony of its operations officer established that Valley Bank paid the Neibaurs’ check in accordance with reasonable banking standards. The critical part of the testimony of the operations officer upon which Valley Bank relies is as follows:
Q In your association with these various banking organizations and in the community of Pocatello, are you familiar with the way other banks handle items and problems such as those that you were confronted with on May 22nd?
A Yes.
Q In your experience is it a fairly common procedure that cashier’s cheeks are substituted for personal checks?
A Yes.
Q Is it your experience that many times signatures and indorsements on a personal check is not required?
A Yes, sir.
Q In your opinion, is that a reasonable banking procedure?
A Yes.
Our reading of this testimony is that it was the opinion of the operations officer that it is a reasonable banking procedure to issue a cashier’s check naming the same payee as the payee on a personal check that is presented for payment at the drawee bank. As we read this testimony, whether this is true or not the personal check is indorsed upon presentment. The implication of this testimony for this case is *735to support the proposition that it was in accordance with reasonable banking standards for Valley Bank to issue a cashier’s check naming the same payee as the payee on the Neibaurs’ check, even though Palmer’s indorsement was not authorized.
In order to determine the effect of the testimony of the operations officer under I.C. § 28-3-406, we must first decide whether the question of Valley Bank’s payment of the Neibaurs’ check in accordance with reasonable banking standards is a question of law or a question of fact. Appellate courts of other jurisdictions have wrestled with this question without giving an unequivocal answer.
In Eatinger v. First Nat’l Bank of Lewistown, 199 Mont. 377, 649 P.2d 1253 (1982), the Montana Supreme Court said:
In Twellman v. Lindell Trust Co. (Mo.App.1976), 534 S.W.2d 83, 93 ALR3d 943, the court held, as a matter of law, that the drawee bank, in accepting a check whose first indorsement was made by someone other than the payee, did not act in accordance with reasonable commercial standards and affirmed the directed verdict for the plaintiff. Here, copies of the checks were attached to the amended complaint and clearly showed the indorsement was by someone other than the payee. Because of this, the bank did not act in accordance with reasonable commercial standards as a matter of law.
Id. at 1256.
In Aetna Casualty & Sur. Co. v. Hepler State Bank, 6 Kan.App.2d 543, 630 P.2d 721 (1981), the Kansas Court of Appeals said:
Whether or not a bank acted in a commercially reasonable manner is a question of fact.
Barring exceptional circumstances, the general rule is that failure of a bank to inquire when an individual cashes a check made payable to a corporate payee and puts the money in [the individual’s] personal account is an unreasonable commercial banking practice as a matter of law.
The trial court here had ample evidence to support its finding that the bank acted in a commercially unreasonable manner. The bank’s act of depositing checks payable to a corporate payee into a personal checking account without inquiring as to the depositor’s authority was enough. In addition, there was expert testimony from a long-time banker that the bank’s actions fell short of acceptable banking practices. The trial court’s finding on this issue must stand.
Id. 630 P.2d at 728 (citations omitted).
In Continental Bank v. Wa-Ho Truck Brokerage, 122 Ariz. 414, 595 P.2d 206 (App.1979), the Arizona Court of Appeals concluded “that what constitutes reasonable commercial standards must be decided in the context of specific facts.” Id. 595 P.2d at 212.
With the guidance of these cases and considering the context in which “reasonable commercial standards” is used in I.C. § 28-3-406, we conclude that the determination of what constitutes reasonable commercial standards is a mixed question of fact and law. Donald Burnett, Jr., a former judge of our Court of Appeals, has referred to mixed questions of law and fact as “applications of legal rules or principles to certain facts.” D. Burnett, Standards of Appellate Review in State and Federal Courts, in Idaho Appellate Handbook 3-6 (2d ed. 1989). To the extent the Uniform Commercial Code (UCC) as it exists in Idaho contains legal rules or principles, these legal rules or principles will govern the result in this case.
We have searched the UCC in vain for any standard concerning the payment of a check drawn on a bank when presented for payment by issuing a cashier’s check payable to the same payee without requiring indorsement by the person presenting the check for payment. I.C. § 28-3-505(1) states the things the party to whom presentment is made may require without dishonoring an instrument:
28-3-505. Rights of party to whom presentment is made. — (1) The party to whom presentment is made may without dishonor require
*736(a) exhibition of the instrument; and
(b) reasonable identification of the person making presentment and evidence of his authority to make it if made for another; and
(c) that the instrument be produced for acceptance or payment at a place specified in it, or if there be none at any place reasonable in the circumstances; and
(d) a signed receipt on the instrument for any partial or full payment and its surrender upon full payment.
I.C. § 28-3-505(1).
This portion of the UCC is silent, however, as to the reasonableness of failing to obtain a signed receipt (indorsement) on presentment when a cashier’s check is issued in exchange naming the same payee as the payee in the original check. No other portion of the UCC addresses this question specifically. I.C. § 28-l-102(2)(b) does, however, give some guidance:
(2) Underlying purposes and policies of this act are
(b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties;
I.C. § 28-l-102(2)(b).
In order to determine the identity of the reasonable commercial standards, to the extent those standards are not contained in the UCC, we must turn to evidence of custom and usage. This is the type of evidence given by the operations officer of Valley Bank. Since that testimony was not rebutted, it establishes for this case what the reasonable banking standards were.
Valley Bank issued its cashier’s check in the name of Monarch Investment pursuant to the reasonable banking standard proved by the unrebutted evidence. Monarch Coin became a holder in due course of the cashier’s check, thus preventing Valley Bank from stopping payment on the cheek. This does not affect the significance of the testimony of the operations officer of Valley Bank. If the cashier’s check was issued pursuant to reasonable banking standards at the time it was issued, subsequent events that allowed Monarch Coin to receive the proceeds of the cashier’s check do not mean that the issuance of the cashier’s check was not in accordance with reasonable banking standards.
Therefore, we hold that the magistrate judge had no basis to rule that Valley Bank did not pay the Neibaurs’ check in accordance with reasonable banking standards.
Because the magistrate judge did not determine whether under I.C. § 28-3-406 the Neibaurs by their negligence substantially contributed to the making of Palmer’s unauthorized indorsement, we vacate that part of the judgment in favor of the Neibaurs and against Valley Bank and remand the case to the magistrate judge for this determination and further proceedings consistent with this opinion.
We also vacate the award of costs and attorney fees to the Neibaurs on appeal. We award costs but not attorney fees on appeal to Valley Bank against the Neibaurs.
BAKES, C.J., and McDERMOTT, J., Pro Tem., concur.