PUBLISHED OPINION
Case No.: 95-0786
Complete Title
of Case:
ALLIED INSURANCE CENTER, INC., and
KLIEBHAN INSURANCE AGENCY, INC.,
Plaintiffs-Respondents,
MILWAUKEE MUTUAL INSURANCE COMPANY,
Involuntary-Plaintiff-Respondent,
AMERICAN GASKET,
Intervening-Plaintiff-Respondent,
v.
WAUWATOSA SAVINGS AND LOAN
ASSOCIATION,
Defendant-Appellant.
Submitted on Briefs: November 7, 1995
Oral Argument: ---
COURT COURT OF APPEALS OF WISCONSIN
Opinion Released: February 27, 1996
Opinion Filed: February
27, 1996
Source of APPEAL Appeal from a judgment
Full Name JUDGE COURT: Circuit
Lower Court. COUNTY: Milwaukee
(If
"Special", JUDGE: MICHAEL P. SULLIVAN
so indicate)
JUDGES: Wedemeyer, P.J., Fine and Schudson, JJ.
Concurred: Fine, J.
Dissented: ---
Appellant
ATTORNEYSFor the defendant-appellant the cause was submitted on
the briefs of Sjostrom & Associates, with Kevin J. Sjostrom,
of Brookfield.
Respondents
ATTORNEYSFor the plaintiffs-respondents Allied Insurance Center,
Inc. and Kliebhan Insurance Agency, Inc., the cause was submitted on the briefs
of Frenn Law Office, S.C., with Thomas L. Frenn, of Milwaukee.
For the
plaintiffs-respondents the cause was submitted on the briefs of Schulz &
Duffey, S.C., with Daniel J. O'Brien, of Milwaukee.
For the
plaintiffs-respondents the cause was submitted on the briefs of Paul J.
Polaski, of Brookfield.
For the
plaintiffs-respondents Milwaukee Mutual Insurance Company, the cause was
submitted on the briefs of D. Sean O'Lochlayne.
For the
intervening-plaintiff-respondent the cause was submitted on the briefs of Kuchler
Law Offices, with Gerard F. Kuchler, of Waukesha.
|
COURT OF
APPEALS DECISION DATED AND
RELEASED February
27, 1996 |
NOTICE |
|
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62(1), Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 95-0786
STATE OF WISCONSIN IN
COURT OF APPEALS
ALLIED
INSURANCE CENTER, INC., and
KLIEBHAN
INSURANCE AGENCY, INC.,
Plaintiffs-Respondents,
MILWAUKEE
MUTUAL INSURANCE COMPANY,
Involuntary-Plaintiff-Respondent,
AMERICAN
GASKET,
Intervening-Plaintiff-Respondent,
v.
WAUWATOSA
SAVINGS AND LOAN
ASSOCIATION,
Defendant-Appellant.
APPEAL
from a judgment of the circuit court for Milwaukee County: MICHAEL P. SULLIVAN, Judge. Affirmed.
Before
Wedemeyer, P.J., Fine and Schudson, JJ.
SCHUDSON,
J. Wauwatosa Savings and Loan
Association appeals from the trial court's award of summary judgment on
liability to Allied Insurance Center, Inc., and to Kliebhan Insurance Agency,
Inc. The trial court concluded that
Wauwatosa acted in a commercially unreasonable manner by accepting improperly
indorsed[1]
checks, payable to the insurance agencies, for deposit into the personal
checking account of Thomas Landisch, an employee of the agencies. The trial court thus barred Wauwatosa from
raising affirmative defenses to liability.
Wauwatosa also appeals from the judgment, following a jury verdict, awarding
American Gasket, a payor or drawer of some of the checks, $20,799 in damages.
This
case presents two issues: (1) whether Wauwatosa, the collecting
or depositary bank, acted in a commercially unreasonable manner as a matter of
law, thereby barring its assertion of affirmative defenses to liability;
and (2) whether American Gasket, the payor or drawer of some of the
checks, was properly allowed to recover against Wauwatosa instead of being
required to seek recovery directly against its own payor bank. On both issues, we affirm the judgment of
the trial court.
I. FACTUAL BACKGROUND
Between
1988 and 1991, Landisch was an insurance agent for the Allied and Kliebhan
insurance agencies. When Landisch would
make a sale, he would collect a check from the customer payable to Allied,
Kliebhan, or to some variant of the agencies' names.[2] Then, without authority from either Allied
or Kliebhan, Landisch indorsed the checks and either cashed them or deposited
them into his own checking account at Wauwatosa. After depositing the checks, Landisch would arrange to pay the
customers' premiums on installment plans using cash, personal checks or
cashier's checks drawn by Wauwatosa.
Landisch cashed or deposited into his personal account approximately 106
checks to Allied and/or Kliebhan totalling approximately $300,000. There was no evidence in the summary
judgment submissions that Allied or Kliebhan had a banking relationship with
Wauwatosa Savings.[3]
It
is undisputed that representatives from Wauwatosa never inquired of Allied or
Kliebhan whether Landisch had authority to indorse or negotiate checks payable
to Allied or Kliebhan. Further,
representatives from Wauwatosa stated in their depositions, submitted in
support of Allied and Kliebhan's summary judgment motion, that tellers should
not have accepted checks payable to the agencies for deposit in Landisch's
personal account or for cash, without having Landisch indicate his authority as
either “owner” or “agent” on the check.
Additionally, head tellers from Wauwatosa affirmed that “[c]hecks
payable to corporations or businesses should never be cashed by a teller but
rather accepted only for deposit to the corporation's or business's account.”
Allied
and Kliebhan filed suit against Wauwatosa, alleging causes of action for
conversion under § 403.419, Stats.,
breach of warranty under § 404.207, Stats.,
and negligence.[4] Allied and Kliebhan moved for summary
judgment on liability against Wauwatosa, requesting that the trial court
conclude that Wauwatosa converted the proceeds of checks payable to Allied and
Kliebhan and “as a matter of law” failed to act in a commercially reasonable
manner. Additionally, Allied and
Kliebhan requested that the trial court bar Wauwatosa from asserting affirmative
defenses to the conversion claim.
Wauwatosa argued that Landisch had been acting with apparent authority,
that Allied and Kliebhan ratified Landisch's conduct, and that Allied and
Kliebhan were estopped from recovering.
The trial court granted Allied and Kliebhan's motion, stating:
The rule of law is, barring exceptional circumstances,
that if a bank doesn't inquire when an individual cashes a check made payable
to a corporation and then deposits the money into his personal account, it is
guilty of an unreasonable commercial banking practice as a matter of law.
The trial court barred Wauwatosa from asserting
affirmative defenses in support of its claim that it acted with commercial
reasonableness, stating:
The duty of a commercial institution such as Wauwatosa
to not allow individuals to cash or deposit into their personal accounts
corporate checks is so straightforward and basic (as evidenced by the words of
its own tellers) that Wauwatosa could not rely on the plaintiffs' failure to
contact it .... Wauwatosa cannot put
the cart before the horse—it was their duty to contact the plaintiffs
re[garding] Landisch's actions, not vice versa.
II. STANDARD
OF REVIEW
Section
802.08, Stats., governs summary
judgment methodology, and we apply that methodology in the same manner as the
trial court. See Green
Spring Farms v. Kersten, 136 Wis.2d 304, 315, 401 N.W.2d 816, 820
(1987). Section 802.08(2) states that
summary judgment “shall be rendered if the pleadings, depositions, answers to
interrogatories, and admission on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” We first examine the pleadings to determine whether they state a
claim for relief. See Green
Spring Farms, 136 Wis.2d at 315-317, 401 N.W.2d at 820-821. If the pleadings state a claim and the
responsive pleadings join the issue, then we examine the summary judgment
submissions to determine whether a genuine issue of material fact exists or
whether either party is entitled to a judgment. Id.
Additionally,
resolution of this appeal requires interpretation and application of various
sections of Wisconsin law adopted from the Uniform Commercial Code. Thus, we employ a de novo
review. See Wilson v.
Waukesha County, 157 Wis.2d 790, 794, 460 N.W.2d 830, 832 (Ct. App.
1990) (statutory interpretation and application subject to independent
appellate review).
III. THE
U.C.C.'S COMMERCIAL UNREASONABLENESS STANDARD
AND
AFFIRMATIVE DEFENSES
Section
403.419(1)(c), Stats., provides
that an instrument is converted when it is paid on a “forged” or unauthorized
indorsement.[5] Subsection three of § 403.419 further
states that a collecting or depositary bank[6]
is not liable in conversion to the true owner of an instrument “in conversion
or otherwise ... beyond that amount of any proceeds remaining in his or her
hands” if the bank dealt with the instrument or its proceeds on behalf of one
who was not the true owner provided the bank “has [acted] in good faith and in
accordance with the reasonable commercial standards applicable” in that
business. Section 403.406, Stats., provides that “any person who
by his or her negligence substantially contributes ... to the making of an
unauthorized signature is precluded from asserting ... lack of authority
against a ... payor who pays the instrument in good faith and in accordance
with the reasonable commercial standards ... of the payor's business.” Additionally, Section 403.404(1), Stats., in part provides that “[a]ny
unauthorized signature is wholly inoperative as that of the person whose name
is signed unless the person whose name is signed ratifies it or is precluded
from denying it.”
Wauwatosa
contends that it cannot be liable for conversion unless there is an
“unauthorized signature” constituting a “forgery.” See § 401.201(43), Stats.
(defining “unauthorized signature”).
Wauwatosa argues, therefore, that if Landisch's signatures were, in fact,
authorized, then it would not be liable for conversion under
§ 403.419. Thus, Wauwatosa
maintains its various affirmative defenses must be considered in determining
whether it acted in a commercially unreasonable manner.
Wauwatosa's summary
judgment submissions included materials to establish that Allied and Kliebhan
knew that Landisch was not paying premiums with the checks from customers, but
rather, was paying premiums with checks drawn by Wauwatosa. Wauwatosa claims that Allied and Kliebhan knew
that Landisch was negotiating the checks made out to the insurance
agencies. Wauwatosa points to a
discussion Landisch had with Harry Polaski, chief executive officer of Allied
and an officer and director of Kliebhan, in which Landisch confessed to taking
a customer's premium check and depositing into his own account. Wauwatosa also contends that because Allied
and Kliebhan were receiving checks from Wauwatosa payable to them, they knew of
Landisch's improper conduct.
Thus,
Wauwatosa would have us address the issue of commercial unreasonableness vis-a-vis
its affirmative defenses in a “which came first—the chicken or the egg?”
query. The recent federal appellate
decision in In re Lou Levy & Sons Fashions, Inc., 988 F.2d
311 (2nd Cir. 1993), however, is persuasive authority that rejects the very
theory on which Wauwatosa bases its argument.
Reviewing a factual background nearly identical to that of the instant
case, the Second Circuit Court of Appeals held that commercial reasonableness
of the depositary bank was a predicate to application of the New Jersey/U.C.C.
counterpart to § 403.404(1), Stats. Id. at 314-316. The Lou Levy court further
held that absent a showing that the bank acted in a commercially reasonable
manner, the bank was barred from asserting affirmative defenses. See id. at 314. Relying on official comments to the U.C.C.,
the court applied commercial unreasonableness as a bar to various affirmative
defenses, reasoning that there was an “interdependence” of the applicable
statutes and that “[i]ndividual sections of the U.C.C. should be interpreted as
part of an entire statutory scheme.” Id.
at 314-315; see also Wis. Stat. Ann. § 401.102 at 7 (West 1995)
(U.C.C. Comments) (“The text of each section should be read in the light of the
purpose and policy of the rule or principle in question, as also of the Act as
a whole.”). The Lou Levy
court further explained:
The general principle guiding the U.C.C.'s allocation of
losses from forged endorsements on checks is to place the loss on the party in
the best position to avoid the loss. As
a result, the U.C.C. typically places the burden of loss on the person who
dealt with and took the instrument in question from the forger as “such person
is presumed to have been in the best position to thwart the attempted fraud and
thereby prevent the loss.”
Id. at 315 (citations omitted).
The
reasoning of Lou Levy is consistent with the holding of numerous
other cases. See Aetna
Casualty & Sur. Co. v. Helper State Bank, 630 P.2d 721, 727-728
(Kan. App. 1981); see, e.g., Hermetic Refrigeration Co., Inc. v.
Central Valley Nat'l Bank, Inc., 493 F.2d 476 (9th Cir. 1974); Central,
Inc. v. Cache Nat'l Bank, 748 P.2d 351, 353-354 (Colo. Ct. App. 1987); Mohr
v. State Bank of Stanley, 734 P.2d 1071, 1077 (Kan. 1987); Martin
Glennon, Inc. v. First Fidelity Bank, N.A., 652 A.2d 199, 203-206 (N.J.
Super. Ct. App. Div. 1995); Inventory Locator Serv., Inc. v. Dunn,
776 S.W.2d 523, 527 (Tenn. Ct. App. 1989); see also 6 Ronald A. Anderson, Anderson on the Uniform
Commercial Code § 3-406:41 (1993 rev. ed.). Thus, the authorities support the proposition that where a
collecting or depositary bank accepts checks made payable to a corporate payee
for cash or deposit into an individual's personal account without investigating
or inquiring of the payee, the bank has engaged in a commercially unreasonable
practice as a matter of law and, therefore, the bank is barred from asserting
affirmative defenses regarding the corporate payee's own negligence as to
liability.[7]
We
agree with the trial court's conclusion that Wauwatosa acted in a commercially
unreasonable manner as a matter of law.
First, the checks being cashed or deposited into an individual's
personal account were payable to corporate payees. Second, there was no banking relationship between Allied or
Kliebhan and Wauwatosa that indicated any possible confusion regarding
different accounts at the same banking institution. Third, it is undisputed that Wauwatosa made no inquiry of Allied
or Kliebhan about Landisch's actions.
Fourth, according to the summary judgment submissions, Wauwatosa's
tellers admitted that cashing or depositing these checks violated Wauwatosa's
policy. Finally, the cashing or
depositing of these checks was also contrary to general banking custom and
practice. See Henry J. Bailey & Richard B. Hagedorn,
Brady on Bank Checks § 13-9, at 13-26 & § 13.10 (7th ed.
1992); 6 Anderson on the Uniform
Commercial Code §§ 3-406:41-.44 & § 3-419.67; 1 James J. White & Robert S. Summers,
Uniform Commercial Code § 15-5, at 761-762 (3rd ed. and
practitioner's ed. 1988).
IV. THE
RIGHT OF THE PAYOR TO RECOVER FROM
WAUWATOSA IN A
DIRECT ACTION
The
original complaint also named as plaintiffs the “Class of Customers of
Plaintiffs Allied Insurance Center, Inc., and Kliebhan Insurance Agency,
Inc.” Wauwatosa moved for an order
determining that the case was not proper as a class action and dismissing with
prejudice the conversion and breach of warranty claims on behalf of the class
of customers. The trial court dismissed
the proposed class's conversion claim, reasoning that a plaintiff in a
conversion action must either be in possession of a chattel at the time of
conversion or be entitled to immediate possession. See Production Credit Ass'n v. Equity Coop Livestock
Sales Ass'n, 82 Wis.2d 5, 10, 261 N.W.2d 127, 129 (1978) (U.C.C. case);
see also Farm Credit Bank of St. Paul v. F & A Dairy,
165 Wis.2d 360, 371, 477 N.W.2d 357, 361 (Ct. App. 1991) (U.C.C. case stating,
“A plaintiff in a conversion action must prove that he was in possession of or
entitled to immediate possession of the chattel that was converted.”).[8] The trial court, however, denied Wauwatosa's
motion to dismiss the proposed class's breach of warranty claim. (The negligence claim was not
addressed.) Although the trial court
eventually rejected certifying the customers as a class, it allowed American
Gasket to participate as an intervening plaintiff.
Following
a bench trial on damages, the trial court found that $157,577.95 of the
proceeds of the checks did not reach the proper parties and, of that amount,
$20,778.77 was owed to American Gasket.
Wauwatosa argues that American Gasket should not be allowed to recover
against it under § 404.207, Stats. Section 404.207, Stats., in relevant part states:
Warranties of customer and collecting bank on
transfer or presentment of items; time for claims. (1) Each customer or collecting bank who obtains
payment or acceptance of an item and each prior customer and collecting bank
warrants to the payor bank or other payor who in good faith pays or
accepts the item that:
(a) The
customer or collecting bank has a good title to the item or is authorized to
obtain payment or acceptance on behalf of one who has a good title; and
(b) The
customer or collecting bank has no knowledge that the signature of the maker or
drawee is unauthorized ... and
(c) The
item has not been materially altered, except that this warranty is not given by
any customer or collecting bank that is a holder in due course and acts in good
faith;
2. To the drawer of a draft whether or not the
drawer is also the drawee.
(Emphasis added.)[9] Wauwatosa argues that the trial court erred
in concluding that American Gasket was an “other payor” under the statute.
Although
the Wisconsin statutes and the U.C.C. define what a “payor bank” is, see
§404.105(4), Stats., neither the
Wisconsin statutes nor the U.C.C. define the term “payor” or “other payor” as
it appears in § 404.207, Stats. Further, we have found no post-Code
Wisconsin case law addressing this issue.[10] As the parties correctly acknowledge,
“[a]lthough the Code does not expressly recognize the right of a drawer to sue
a depositary or collecting bank paying under a forged indorsement,” 6 Anderson on the Uniform Commercial Code
§ 3-419:89, the authorities are divided on whether a drawer/payor can bring a
direct action against a collecting bank in a breach of warranty action under
U.C.C. § 4-207, and on the various theories under which the drawer/payor
could bring such an action.[11] See Prudential Ins. Co. of
America v. Marine Nat'l Exch. Bank, 315 F.Supp. 520, 521-522 (E.D. Wis.
1970) (drawer/payor could bring direct action against collecting bank); Sun
'n Sand v. United Cal. Bank, 582 P.2d 920 (Cal. 1978) (drawer/payor
could bring direct action against collecting bank); Leonard Smith, Inc.
v. Merrill Lynch, Pierce, Fenner & Smith, 495 N.Y.S.2d 769 (N.Y.
App. Div. 1985) (payor could not bring direct action against collecting bank); Life
Ins. Co. of Va. v. Snyder, 358 A.2d 859 (N.J. 1976) (payor could not
bring direct action against collecting bank); Stone & Webster Eng'g
Corp. v. First Nat'l Bank & Trust Co. of Greenfield, 184 N.E.2d 358
(Mass. 1962) (payor could not bring direct action against collecting bank); see
also 7 Anderson on the Uniform
Commercial Code §§ 4-207:38-.39; Brady
on Bank Checks § 29.26-.27 & (1995 cum. supp. no. 1); 1 White & Summers, Uniform Commercial Code
§ 15-9.
Commentators
on the U.C.C. also are divided.
Expressing one view, Professors White and Summers contend:
it seems most unlikely that the Code draftsmen intended
the drawer to be regarded as “another payor.”
Apparently the draftsmen intended that the drawer have a suit against
his drawee bank for improper payment and that the drawee should bear the burden
of raising and arguing any defense, such as negligence, which would preclude
the drawer from asserting forgery or the like.
To hold that the warranties in 4-207 flow either directly or under a
third-party beneficiary theory to the drawer, is to shift the burden of
presenting these defenses to the depositary or other collecting banks who would
be likely defendants in such suit. As
indicated before, it seems likely that the drawee is in the best position to
prove negligence on the drawer's part, that the drawee should therefore be made
to do so, and that the drawer has no real complaint if he is limited to a suit
against his drawee inasmuch as his own bank is likely to be a convenient
defendant located in his own home town.
For these reasons we think it unfortunate that some courts have extended
the 4-207(1) warranty to the drawer.
1 White & Summers, Uniform
Commercial Code § 15-9, at
776-777 (footnotes omitted). Professor
Anderson, however, offers the opposing view to accomplish judicial economy and
to avoid multiple lawsuits and “the circuity of action requiring the drawer to
sue the drawee bank which would then sue the collecting bank on its transfer warranty.” 6A
Anderson on the Uniform Commercial Code § 3-419:89; 7 Anderson on the Uniform Commercial Code
§ 4-207:38.
We
conclude that allowing the drawer to be an “other payor” able to maintain a
direct breach of warranty action under § 404.207, Stats., is consistent with Wisconsin law. Even before adoption of the U.C.C., the
supreme court concluded that “[a]n intermediary bank which receives a check ...
on a forged indorsement and collects it from the drawee is liable to the drawer
or owner for his loss.” National
Sur. Corp. v. City Bank & Trust Co., 248 Wis. 32, 34, 20 N.W.2d
559, 560 (1945). Moreover,
§ 401.102(2)(a)'s directive that the underlying purpose and policy of
Wisconsin's version of the U.C.C. is, among other things, “[t]o simplify,
clarify and modernize the law governing commercial transactions,” also supports
the drawer's opportunity to recover from the collecting bank directly.
In
sum, the trial court properly barred Wauwatosa from asserting affirmative
defenses to liability in a conversion claim under § 403.417, Stats., and properly granted summary
judgment based on Wauwatosa's commercial unreasonableness in allowing a
corporate employee to cash or deposit improperly indorsed checks into the
employee's personal account. Additionally,
American Gasket, as a drawer/payor was properly allowed a judgment against
Wauwatosa under § 404.207, Stats.
By
the Court.—Judgment affirmed.
No. 95-0786(C)
FINE,
J. (concurring). I join in the
majority opinion except insofar as it holds that § 404.207, Stats., permits the maker of a check,
the “drawer,” to bring a direct action against a collecting bank.[12] The clear language of § 404.207 is to
the contrary. Section 404.207, Stats., provides, as material to our
discussion:
Warranties of customer and collecting bank on
transfer or presentment of items; time for claims. (1) Each customer or collecting bank who obtains
payment or acceptance of an item and each prior customer and collecting bank
warrants to the payor bank or other payor who in good faith pays or accepts the
item that:
(a) The
customer or collecting bank has a good title to the item or is authorized to
obtain payment or acceptance on behalf of one who has a good title; and
(b) The
customer or collecting bank has no knowledge that the signature of the maker or
drawee is unauthorized ... and
(c) The
item has not been materially altered, except that this warranty is not given by
any customer or collecting bank that is a holder in due course and acts in good
faith;
2. To the drawer of a draft whether or not the
drawer is also the drawee.
Under this provision, the warranties flow to “the payor
bank or other payor who in good faith pays or accepts the item.” American Gasket is neither a “payor bank”
nor a “payor who in good faith pa[id] or accept[ed]” the check it drew.[13] Thus, in my view, § 404.207 does not apply.[14]
Although
I do not believe that § 404.207, Stats.,
applies to American Gasket's claim in this case, I join in the result because
§ 403.419, Stats., does
apply. Section 403.419 provides:
Conversion
of instrument; innocent representative.
(1) An instrument is
converted when:
(a) A drawee to whom it is delivered for
acceptance refuses to return it on demand; or
(b) Any person to whom it is delivered for
payment refuses on demand either to pay or to return it; or
(c) It is paid on a forged indorsement.
(2) In an action against a drawee under sub. (1) the measure of the
drawee's liability is the face amount of the instrument. In any other action under sub. (1) the
measure of liability is presumed to be the face amount of the instrument.
(3) Subject to the provisions of chs. 401 to 411 concerning restrictive
endorsements a representative, including a depositary or collecting bank, who
has in good faith and in accordance with the reasonable commercial standards
applicable to the business of such representative dealt with an instrument or
its proceeds on behalf of one who was not the true owner is not liable in
conversion or otherwise to the true owner beyond the amount of any proceeds
remaining in his or her hands.
(4) An intermediary bank or payor bank which is not a
depositary bank is not liable in conversion solely by reason of the fact that
proceeds of an item indorsed restrictively (ss. 403.205 and 403.206) are not
paid or applied consistently with the restrictive indorsement of an indorser
other than its immediate transferor.
As the majority notes, Wauwatosa Savings and Loan
Association paid the American Gasket checks “on a forged indorsement,” as that
term is used in § 403.419.
Majority op. at 6 n.5 (“`There is no distinction between an unauthorized
indorsement and a forgery. They are
synonymous for the purpose of U.C.C. §3-419.'”) (quoting 6A Ronald A. Anderson, Anderson on the Uniform
Commercial Code §§ 3‑419:27 and 3-419:71) (1993 rev. ed.
& Oct. 1995 supp.). Further,
although § 403.419(3), Stats.,
limits the liability of a “representative, including a depository or collecting
bank” to “the amount of any proceeds remaining” in their hands, that limitation
applies only if the “representative” has dealt with the instrument “in good
faith and in accordance with the reasonable commercial standards applicable to
the business of such representative.”
We have already determined that Wauwatosa Savings and Loan did not so
deal with the checks it accepted from Thomas Landisch and deposited into his
account. Thus, in my view, Wauwatosa
Savings and Loan is liable to American Gasket in conversion under
§ 403.419. See Allied
Concord Financial Corp. v. Bank of America Nat'l Trust and Sav. Ass'n,
80 Cal. Rptr. 622, 624 (Ca. Ct. App. 1969) (alternate holding). This view is consistent with pre-U.C.C.
Wisconsin law, see National Sur. Corp. v. City Bank & Trust
Co., 248 Wis. 32, 34, 20 N.W.2d 559, 560–561 (1945); Evenson v.
Waukesha Nat'l Bank, 189 Wis. 170, 174–175, 207 N.W. 405, 415 (1926),
and with the general pre-U.C.C. rule elsewhere, 9 C.J.S. Banks and Banking
§ 356 at 738 (1938) (“Generally the drawer of a check can recover of a
collecting bank for its payment and collection of the check on a forged
indorsement, as for money had and received or for conversion, provided the
drawer shows that he has title to the check or proceeds or the right to
possession thereof.”) (footnotes omitted).[15]
[1] The “i” spelling
is generally used in this opinion, since that follows the U.C.C. and the
Wisconsin version of the U.C.C. The “e”
spelling is used in some instances where that version of the word is contained
in a quoted statement of a court or some other party.
[3] The lack of
banking relationship between Wauwatosa and Allied or Kliebhan was confirmed at
the trial on damages.
[4] Milwaukee Mutual
Insurance Company was named as an involuntary plaintiff due to its subrogated
interest in the amount of $50,000 as Allied and Kliebhan's employee dishonesty
insurer.
[5] See Aetna
Casualty & Sur. Co. v. Helper State Bank, 630 P.2d 721, 725 (Kan.
App. 1981); 6A Ronald A. Anderson,
Anderson on the Uniform Commercial Code § 3-419:27 (“There is no
distinction between an unauthorized indorsement and a forgery. They are synonymous for the purpose of
U.C.C. §3-419.” (Footnotes omitted.))
& § 3-419.71 (1993 rev. ed. & Oct. 1995 supp.); see also Henry J. Bailey & Richard B. Hagedorn,
Brady on Bank Checks § 28.2 (7th ed. 1992).
[7] In addition to
simply asking a corporate payee about a depositor's authority, bank employees
could do any number of things including but not necessarily limited to looking
at the signature cards for the corporate payee's account(s) or requiring a
properly drawn corporate resolution or authorization.
[8] This issue was barely discussed below
apparently because the parties and the trial court were more concerned about
the conflicts issue related to the plaintiffs' attorney representing Allied,
Kliebhan and the proposed class. In
support of certifying the class, the plaintiffs argued that: there was a
conversion; the payors were involved; the payors should thus be brought in
under ch. 803, Stats., favoring
broad joinder; and, in an argument unsupported by authority and not really
developed, the payors had a subrogated interest. Wauwatosa made the argument, which the trial court adopted, that
“the members of the proposed customer class, by voluntary delivery of the
checks to Landisch, relinquished their possessory rights and any ability to
assert a conversion claim.” As noted,
this was a minor issue, which was not given great attention below.
Contrary
to the concurrence's statement of a “general rule” (relying on pre-U.C.C.
citations) in support of a drawer/payor's right to bring a direct conversion
action against a depositary or collecting bank, the right and remedy of a
drawer of a check against the collecting bank under both pre-U.C.C. law and
U.C.C. is mixed. See J.C. Vance,
Annotation, Right and Remedy of Drawer of Check Against Collecting Bank
Which Receives It on Forged Indorsement and Collects It From Drawee Bank, 99 A.L.R.2d 637 (1965); see also
Perini Corp. v. First National Bank, 553 F.2d 398, 408 n.12 (5th
Cir. 1977) (“there exist substantial questions whether the drawer of a check is
a proper plaintiff in a conversion action”); 1
White & Summers, Uniform Commercial Code §§ 15-4 & 15-5
(noting that “[p]re-Code law was divided on whether the drawer may sue in
conversion” and criticizing U.C.C. § 3-419 as a ‘haphazard’ codification
of conversion liability,” which among other things fails to identify proper
plaintiffs).
Additionally,
both current Wisconsin case law and comment 2 of § 403.419 directly reject
the concurring opinion's attempt to allow a drawer/payor to bring a direct
conversion cause despite lack of possession. First, Production Credit Ass'n v. Equity Coop Livestock
Sales Ass'n, 82 Wis.2d 5, 10, 261 N.W.2d 127, 129 (1978), and Farm
Credit Bank of St. Paul v. F & A Dairy, 165 Wis.2d 360, 371, 477
N.W.2d 357, 361 (Ct. App. 1991), are more recent U.C.C./conversion cases and
thus, more authoritative than pre-U.C.C. cases relied upon by the concurring
opinion. Second, comment 2 of
§ 403.419 states that “[a] negotiable instrument is the property of the holder.”
(Emphasis added.) The definitions of
“holder,” found in §§ 403.302 & 401.201(20), Stats., do not encompass drawer/payor who relinquished
possession. This would be consistent
with those authorities stating that the “true owner” under U.C.C. § 3-419
refers to the payee.
[9] We note that
this section of the Uniform Commercial Code was revised in 1990. Wisconsin, however, has not adopted the
revision.
[10] Wauwatosa argues
that Fidelity & Deposit Company of Maryland v. First National Bank of
Kenosha, 98 Wis.2d 474, 297 N.W.2d 46 (Ct. App. 1980), addressed this
issue. We disagree. Although this case did discuss the
definition of “other payor” under § 403.406, Stats., it did not address the term “other payor” under
§ 404.207, Stats.
[11] Further
complicating resolution of this issue, the case law and various treatises
sometimes use the terms “payor,” “drawer,” and “maker” interchangeably.
[12] I also do not join in footnote 7 of the
majority opinion; I do not believe that its discussion of what Wauwatosa
Savings and Loan could have done to prevent the loss is necessary to our
decision. Additionally, contrary to
periodic language in the majority opinion, under the circumstances here the person
or entity writing a check is its “maker” or “drawer”—not its “payor.” See Henry
J. Bailey and Richard B. Hagedorn, Brady
on Bank Checks ¶ 1.11 at 1-15 (7th ed. 1992).
[13] As noted in footnote 1, American Gasket is
the maker or drawer of the checks at issue in this case.
[14] The cases upon which the majority relies for
the proposition that a drawer of a check may recover against a collecting bank
under U.C.C. § 4‑207 permitted recovery on a third-party beneficiary
theory, thereby recognizing, tacitly at least, that the warranties under §
4-207 do not flow directly to the drawer.
See Sun 'n Sand, Inc. v. United Cal. Bank, 582 P.2d
920, 928 (Cal. 1978); Prudential Ins. Co. of America v. Marine Nat'l
Exch. Bank, 315 F. Supp. 520, 521 (E.D. Wis. 1970). The majority here does not rely on the
third-party-beneficiary theory.
[15] I do not understand the materiality of either
Production Credit Ass'n v. Equity Coop Livestock Sales Ass'n, 82
Wis.2d 5, 261 N.W.2d 127 (1978), or Farm Credit Bank of St. Paul v. F
& A Dairy, 165 Wis.2d 360, 477 N.W.2d 357 (Ct. App. 1991), cited by
the majority in footnote 8. Neither
case concerned either checks or § 403.419, Stats. The majority's footnote 8 also ignores
the clear language of § 403.419(1)(c), Stats.,
that “[a]n instrument is converted when ... [i]t is paid on a forged
indorsement.” With all due respect,
Comment 2 to § 403.419 has nothing to do with this case.