10 Mass. App. Ct. 715 | Mass. App. Ct. | 1980
The First National Bank of Boston, as conservator of Frederick Markus’s property, brought an action against the trustees of the Northeast Investors Trust (hereinafter NIT) following allegedly wrongful transfers and liquidation of stock originally held by Frederick Markus to Philip Markus, Frederick’s son. Similar actions were brought by the First National Bank and other trustees of the Paula Anna Markus Foundation (hereinafter the Foundation) against the Massachusetts Growth Stock Fund, Inc. (hereinafter MIGS), and the Vance, Sanders Common Stock Fund, Inc. (hereinafter VS). The cases were consolidated for trial and for appeal. The defendants appeal from judgments in favor of the plaintiffs. In addition, defendant NIT appeals from the judgment dismissing its third-party complaint against New England Merchants National Bank (hereinafter Merchants) seeking to compel Merchants to recredit its account for the payment of a NIT check bearing an unauthorized signature. We affirm in part and reverse in part.
I. Contributory Negligence.
The only issue the defendants raise on appeal is whether the plaintiffs gave “proper notice” of the wrongful transfer of securities to the proper parties within the meaning of the “Investment Securities” provisions of the Massachusetts Uniform Commercial Code (G. L. c. 106, §§ 8-101 through 8-406
“Where an issuer has registered a transfer of a security to a person not entitled to it the issuer on demand must deliver a like security to the true owner unless . . . (b) the owner is precluded from asserting any claim for registering the transfer under subsection (1) of the following section, ...”
By virtue of § 8-404(2), since the defendants transferred the plaintiffs’ stock to a person not entitled to it, the defendants must issue to the plaintiffs like securities unless the plaintiffs are precluded from asserting such a claim under § 8-405(1), which provides:
*718 “Where a security has been lost, apparently destroyed or wrongfully taken and the owner fails to notify the issuer of that fact within a reasonable time after he has notice of it and the issuer registers a transfer of the security before receiving such a notification, the owner is precluded from asserting against the issuer any claim for registering the transfer under the preceding section or any claim to a new security under this section.”
The question therefore becomes whether the plaintiffs notified the defendants that their stock had been wrongfully taken within a “reasonable time”
(a) MIGS. On June 11, 1975, MIGS, by relying on the forged power of attorney, wrongfully transferred from the Foundation’s MIGS account 5,364.703 shares of the Foundation’s total account of 5,463.703 shares. Although a MIGS representative testified that a quarterly statement of the account, which showed the decrease in the number of shares held by the Foundation, was sent to Frederick Markus, as trustee of the Foundation, on June 27,1975, Frederick testified that he had no recollection of.receiving the statement.
(b) NIT. On April 18, 1975, Frederick pledged as security for a loan to Philip from The First National Bank of Boston the 3,200 shares Frederick held individually in NIT. On October 22, 1975, after Philip defaulted on the loan, Frederick requested NIT by letter to liquidate 1,930 of the shares, remitting the proceeds to the First National Bank, and to reissue a certificate to him for the remaining shares. On November 5, 1975, Philip, through the use of a forged power of attorney,, dated April 17, 1975, directed NIT to liquidate 1,270 of the remaining shares and remit the proceeds to him and on November 5, 1975, NIT delivered to Philip a check for $17,018 representing the proceeds from the sale of the 1,270 shares. On December 3, 1975, Frederick gave notice to the First National Bank not to honor the forged power of attorney.
NIT, by means of incorporating by reference the arguments made by VS and MIGS on the issue of reasonable notice, argues that the June 27, 1975, MIGS quarterly statement was notice to Frederick that the NIT stock had been lost, destroyed or wrongfully taken and that therefore the notice to NIT was unreasonable as a matter of law. The facts belie this argument, for, as late as October 24, 1975, when NIT remitted the proceeds of the sale of the 1,930 shares to the First National Bank, Frederick had actual
(c) VS. On December 12, 1975, VS, by relying on the forged power of attorney, wrongfully transferred 7,490.216 of the Foundation’s total of 14,966.216 shares held in VS to Philip. Sometime after December 17, 1975, Frederick received a quarterly statement reflecting the transfer. On December 30, 1975, Frederick gave notice to Merchants to stop any transfer in the VS account. VS, like NIT, argues that the MIGS June 27, 1975, quarterly statement was notice to Frederick that the VS stock had been lost, destroyed or wrongfully taken and that therefore the lapse between June 27, 1975, and December 30, 1975, is, as a matter of law, unreasonable. We reject the argument that notice of wrongful transfers in the MIGS account is notice of wrongful transfers in the VS account and hold that the judge’s finding that the December 30, 1975, notice was seasonable is not clearly erroneous.
II. NIT’s Third-Party Complaint.
NIT appeals from the dismissal of its third-party complaint against Merchants for honoring NIT’s check under an alleged forged endorsement. Because we hold that Merchants failed to meet its burden of proof in establishing that it acted in accordance with reasonable commercial standards of the banking business within the meaning of G. L. c. 106, § 3-406, we vacate the dismissal and enter judgment for NIT on its third-party complaint.
The trial judge found that the April 17,1975, power of attorney was a forgery. Merchants admits in its fourth-party complaint against Frederick Markus and Philip Markus that when Philip presented the check to Home for payment, he also presented the forged power of attorney and endorsed the check as follows: “Frederick E. Markus/ Philip K. Markus/By Power of Attorney/Nov. 7, 1975.” Section 1-201(43) provides: “‘Unauthorized’ signature or indorsement means one made without actual, implied or apparent authority and includes a forgery.” A check presented under an unauthorized signature, as was the case here, is not “properly payable” within the meaning of G. L. c. 106, § 4-401(1), and the drawee is liable to the issuer for payment of a check not properly payable. See Stone & Webster Engr. Corp. v. First Natl. Bank & Trust Co., 345 Mass. 1 (1962).
Merchants relies on the affirmative defense provided by G. L. c. 106, § 3-406, which follows:
“Any person who by his negligence substantially contributes to a material alteration of the instrument or*722 to the making of an unauthorized signature is precluded from asserting the alteration or lack of 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 reasonable commercial standards of the drawee’s or payor’s business.”
Merchants argues that by failing to follow Frederick’s instructions of October 22,1975, to re-issue a certificate for the remaining shares in his NIT account and by liquidating these shares at Philip’s instruction under a forged power of attorney on November 5, 1975, NIT, by its own negligence substantially contributed to the making of the unauthorized signature. It cites no Massachusetts authority and we have found none describing what actions on the part of an issuer constitute negligence that substantially contributes to an unauthorized signature. The official comment to § 3-406 expressly states that no attempt is made to define negligence.
Because we hold that Merchants failed to establish that it acted in good faith and in accordance with reasonable commercial standards under § 3-406, we need not and do not decide the parameters of the test of negligence which substantially contributes to a material alteration or to an unauthorized signature under § 3-406, nor need we decide whether NIT’s alleged negligence lies within these parameters. We leave that decision for another day.
The record is devoid of any evidence on how NIT’s check was paid, what procedures were followed and whether these procedures were commercially reasonable.
Finally, Merchants argues that if it is held liable, the amount of the judgment against NIT and, in turn, the amount of the judgment against Merchants should be reduced to $8,000 plus interest. We agree that the judgments in favor of the plaintiff and the third-party plaintiff in the principal case should be reduced to reflect the extent of the harm. See Gordon v. State Street Bank & Trust Co., 361 Mass. 258 (1972). The judge below found that Frederick Markus never profited from the activities of Philip Markus and therefore ordered NIT to deliver to the plaintiff a certificate representing 1,270 shares of stock in NIT and to pay the plaintiff a sum equal in value of all dividends, interest, and capital gains that would have been earned had NIT not wrongfully liquidated the stock. We may not upset the trial
III. Disposition.
In the principal case we vacate the judge’s judgment in favor of The First National Bank of Boston, as conservator, awarding it a certificate representing 1,270 shares of NIT stock plus interest, dividends and capital gains and remand the case to the Superior Court for a determination of the proper amount of the judgment. By way of guidance, the plaintiffs recovery should be limited to the number of shares represented by $8,000 calculated on the basis of their market value on the date they were wrongfully liquidated, plus the monetary value of all interest, dividends and capital gains on the resulting number of shares, together with the monetary value of all interest, dividends and capital gains the plaintiff would have earned but for the wrongful transfer on the number of shares represented by the $9,018, less the interest the plaintiff earned on that sum from the date it was deposited in the plaintiff s account to the date of judgment. The judgment in the principal case with respect to the third-party complaint is reversed and judgment is to be entered for the third-party plaintiff NIT in the amount of $8,000. The judgments in favor of the plaintiff Foundation in its actions against VS and MIGS are affirmed.
So ordered.
All quotations from c. 106 are from that statute as. inserted by St. 1957, c. 765, § 1.
Section 1-204(2) provides: “What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action.”
The definitional section of Article 8, § 8-102, incorporates the Article 1 definition of notice to include constructive notice. Section 1-201(25) provides in part: “A person has ‘notice’ of a fact when (a) he has actual notice or knowledge of it; or (b) he has received a notice or notification of it; or (c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists . . . .”
Section 3-406, Comments 3 and 7, appearing in 2 Uniform Laws an-not., U.C.C. at 348, 349 (Master ed. 1977).
Although the issue has not been squarely addressed in Massachusetts as to whether the drawee bank must establish its own due care as well as the due care of the payor bank, such a conclusion is consistent with Stone ir Webster Engr. Corp. v. First Natl. Bank & Trust, supra. Under Stone ir Webster, the issuer may not maintain a direct action against the payor bank, but must instead proceed against the drawee bank for improperly charging an item against its account. The drawee bank is, in turn, free to pursue its remedies against the payor bank under the warranty sections of the code (§ § 3-417 and 4-207). Consistent with the procedures established