761 S.W.2d 857 | Tex. App. | 1988
This appeal presents the narrow question of whether the good faith and commercial reasonableness defense afforded to a “representative” under section 3.419 of the Texas Business and Commerce Code (the Code)
None of the material findings of fact made by the trial judge as set forth below are contested on appeal:
1. On or about March 8, 1985, BWW-1 Joint Venture issued a check drawn on Interfirst Bank Dallas, N.A., payable to the order of “Adrian Const. Co., Phillips Concrete Con. and Pioneer Concrete” for the principal amount of twenty-one thousand, three hundred seventy-eight dollars and eighty-eight cents ($21,378.88).
2. On or about March 21, 1985, BWW-1 Joint Venture issued a check drawn on Interfirst Bank Dallas, N.A. payable to the order of “Adrian Constr. Co., Phillips Construction and Pioneer Concrete” for the principal amount of twelve thousand two hundred seventeen dollars and sixty-four cents ($12,217.64).
*858 3. The endorsement of payee Pioneer Concrete of Texas, Inc. was forged on each of these checks.
5. ... Interfirst Bank Dallas, N.A. paid the checks in question in good faith and in accordance with reasonable commercial standards.
7. ... Interfirst Bank Dallas, N.A. (is) liable to Pioneer Concrete of Texas for the face amount of each check paid over the forged endorsement of Pioneer Concrete of Texas, Inc.
The conclusions of law made by the trial judge as set forth below are contested on appeal:
3. A drawee bank [payor bank]2 is not a “representative” within the definition of Section 3-419(c) of Texas Business and Commerce Code.
4. The drawee bank, Interfirst Bank Dallas, N.A., is not entitled to assert the defense to payment upon a forged endorsement of payment in good faith and in accordance with reasonable commercial standards provided for in Section 3.419(c) of Texas Business and Commerce Code.
6. ... Interfirst Bank Dallas, N.A. is indebted to Pioneer Concrete of Texas, Inc. in the principal amount of thirty-three thousand five hundred ninety-six dollars and fifty-two cents ($33,596.52) plus prejudgment interest and costs of court.
So far as we can determine, the precise question at issue has been decided only by the U.S. District Court for the Eastern District of New York. United States v. Bankers Trust Co., 17 U.C.C.Rep.Serv. 136 (E.D.N.Y.1975). That opinion curtly dismissed the payor/drawee bank’s contention that it was entitled to the good faith and commercial reasonableness defense with the comment that “its application to the drawee bank would emasculate the conversion liability.” Bankers Trust Co., 17 U.C.C.Rep.Serv. at 141. We have no quarrel with such a summary disposition. Several commentaries
We are constrained to adopt the same position as that already so uniformly advocated. Our process of adoption takes a functional approach. Section 3.419(a)(3) makes clear, for the first time by statute, that the act of payment by the pay- or/drawee bank is an act of conversion against the payee’s property when the pay- or/drawee bank ignores a forgery of the payee’s endorsement. See TEX.BUS. & COM.CODE ANN. § 3.419, comment 3 (Tex.U.C.C.) (Vernon 1968). At common law, conversion is an act of malfeasance as
The key to a limited application of the defense lies in the Code’s definition of “representative” which makes that term co-extensive with an agency relationship.
On this basis, the payor/drawee bank does not qualify as a “representative” of the owner. Accordingly, the trial court properly ruled that as a matter of law a payor/drawee bank is not entitled to assert the defense of good faith and commercial reasonableness afforded to a representative under section 3.419(c). We overrule the sole point of error and affirm the trial court’s judgment.
. § 3.419. Conversion of Instrument; Innocent Representative.
(a) An instrument is converted when ...
(3) it is paid on a forged indorsement.
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(c) Subject to the provisions of this title concerning restrictive indorsements 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 hands. TEX.BUS. & COM.CODE ANN. (Tex. U.C.C.). (Vernon 1968).
. By common commercial practice, the terms "drawee bank" and "payor bank" are used interchangeably, since a check is normally drawn on the same bank where it is payable. Nonetheless, for purposes of clarity, we use the combined term "payor/drawee bank” throughout this opinion.
. H. Bailey, The Law of Bank Checks § 15.14 (4th ed. 1969);
B. Clark & A. Squillante, The Law of Bank Deposits, Collections, and Credit Cards, 141-47 (1st ed. 1970);
4 W. Hawkland, Uniform Commercial Code Series 802-804 (1984);
2 A. Squillante & J. Fonseca, The Law of Modem Commercial Practices § 5:47 (Rev. ed. 1981);
J. White and R. Summers, Uniform Commercial Code § 15-5 (3d ed. 1988).
. Clark v. Griffin, 41 U.C.C.Rep.Serv. 876, 880-81, 481 N.E.2d 170, 173 (Ind.Ct.App.1985); Hydroflo Corp. v. First Nat'l Bank of Omaha, 38 U.C.C.Rep.Serv. 932, 934-36, 217 Neb. 20, 349 N.W.2d 615 (1984); Equipment Distrib., Inc. v. Charter Oil Bank & Trust Co., 20 U.C.C.Rep. Serv. 1231 (Conn.Super.Ct.1977); Grieshaber v. Michigan Nat'l Bank, 18 U.C.C.Rep.Serv. 1248, 1252 (Mich.C.P.1976); Cooper v. Union Bank, 120 U.C.C.Rep.Serv. 209, 224 (Cal.1973).
. § 1.201. General Definitions. (35) "Representative" includes an agent, an officer of a corporation or association, and a trustee, executor or administrator of an estate, or any other person empowered to act for another. TEX. BUS. & COM.CODE ANN. (Tex.U.C.C.) (Vernon 1968).