325 S.E.2d 656 | N.C. Ct. App. | 1985
CHAMPION INTERNATIONAL CORPORATION
v.
UNION NATIONAL BANK.
Court of Appeals of North Carolina.
*657 Royster, Royster & Cross by T.S. Royster, Jr., Oxford, for defendant-appellant.
Bailey, Dixon, Wooten, McDonald & Fountain by David M. Britt, Wright T. Dixon, Jr., and Gary K. Joyner, Raleigh, for plaintiff-appellee.
ARNOLD, Judge.
The question presented by this appeal is whether the Bank improperly cashed three certificates of deposit to the registered holder when it had notice that the State Bureau of Investigation (SBI) had confiscated the actual certificates in connection with an investigation of fraud and embezzlement of Champion by an employee.
The Bank argues that Article 3 of the UCC applies to the certificates and suggests that its handling of the certificates was correct. Assuming Article 3 does apply, we find, however, that it does not sanction the Bank's cashing of the certificates.
The certificates all stated that they are payable to "... registered holders upon surrender of this certificate properly endorsed." Under G.S. 25-3-413, the maker of the instrument, in this case the Bank, "engages that he will pay the instrument according to its tenor at the time of his engagement...." A "holder" is a person "who is in possession of a document of title or an instrument or an investment security drawn, issued or indorsed to him or to his order or to bearer or in blank." G.S. 25-1-201(20) (emphasis added).
Champion's employee was not in possession of the certificates at the time he sought payment for them. He was therefore *658 not a "holder," and the Bank violated its contract and G.S. 25-3-413 by paying out to him.
The Bank claims that its liability under the certificates was discharged pursuant to G.S. 25-3-603(1), by payment to the employee, and by failure of Champion to supply an indemnity bond or to obtain a court order enjoining payment. Yet, G.S. 25-3-603(1) predicates discharge on "payment or satisfaction to the holder." As noted above, Dewey was not in possession and therefore was not a holder.
The Bank is still liable on the certificates, and Champion may redeem them given that it is a "registered holder." Prior to the summary judgment against the Bank, the SBI for Champion was in possession of the certificates. It was not a "holder," however, because the certificates had not been issued or endorsed to it, or to its order, or in blank. The trial court's order of 9 January 1984, however, awarded Champion the amounts payable under the certificates because Champion was the equitable owner. The trial court's order, we find, effectively discharges the Bank of its liability under the certificates once it pays the award to Champion.
When payment was demanded by the employee, who did not have the certificates, and the Bank had actual knowledge that the SBI had confiscated the certificates in connection with a fraud investigation, the Bank should have held the funds until ownership of the certificates had been determined by a court of law. The employee's only recourse at that stage would have been to proceed according to G.S. 25-3-804, even though it is doubtful whether he would have succeeded since he was not the true owner of the certificates.
If the Bank determined that under the circumstances it should pay the employee, then it did so at its own risk, and should have required an indemnity bond of some sort in the event of other claims. The Bank did require a "lost securities bond," and we take that as evidencing the Bank's recognition that it might be liable when the certificates were presented by another.
The Bank has no defense against the judgment on the grounds of the Uniform Commercial Code.
Affirmed.
WELLS and EAGLES, JJ., concur.
