JR Simplot, Inc. v. Knight

Decision Date18 November 1999
Docket NumberNo. 67652-6.,67652-6.
PartiesJ.R. SIMPLOT, INC., d/b/a Simplot Soilbuilders, a Nevada corporation, Respondent, v. Richard L. KNIGHT and Doris M. Knight, husband and wife; Richard E. Knight, a single person, Defendants, Yakima Federal Savings and Loan Association, Petitioner.
CourtWashington Supreme Court

Cone, Gilbreath, Ellis & Cole, Erin L. Anderson, Ellensburg, amicus curiae on behalf of Washington Sav. League and Washington Bakers Assoc.

Robert Wayne Bjur, Zillah, for Defendant.

Halverson & Applegate, Don W. Schussler, Linda Ann Sellers, Yakima, for Petitioner.

Lyon, Weigand & Gustafson, Robert Morrill Boggs, Yakima, for Respondents.

SANDERS, J.

Although "[p]unctuation is a most fallible standard by which to interpret a writing," Lessee of Ewing v. Burnet, 36 U.S. (11 Pet.) 41, 54, 9 L.Ed. 624 (1837), the sole issue we must determine is the legal significance of a hyphen separating multiple payees on a negotiable instrument.

Three checks made payable to the order of "Rick Knight-Simplot Soil Builders" were endorsed and deposited by Rick Knight alone. Simplot sued Yakima Federal Savings and Loan (hereinafter "Yakima Federal") for conversion, but the trial court granted summary judgment, holding the hyphen was ambiguous and the check was therefore payable in the alternative. The Court of Appeals, Division Three, reversed. We granted Yakima Federal's petition for review and hold a hyphen is patently ambiguous when used to separate multiple payees on a negotiable instrument. Because the checks here did not unambiguously indicate whether they were to be paid jointly or in the alternative, RCW 62A.3-110 mandates they were payable in the alternative, thus requiring only one valid endorsement to be properly negotiated.

FACTS

The following facts are undisputed by the parties. J.R. Simplot, Inc. (d/b/a Simplot Soilbuilders) held a security interest in Richard L. Knight's 1996 crops. To protect this security interest, Simplot sent a "SECURITY INTEREST NOTICE "to all potential purchasers of Knight's crops. This notice informed the buyers of Simplot's security interest and requested: "If you purchase or are involved in the sale of these farm products, please include Simplot Soilbuilders on all drafts issued to [Knight]." Clerk's Papers at 32-33. The payment instructions provided: "Secured Party and Debtor's name must be placed on check." Id.

In 1996 Knight sold crops to George DeRuyter & Sons Dairy, which paid for the crops with a check in the amount of $32,916.79. George DeRuyter & Sons Dairy made the check payable to the order of "Rick Knight-Simplot Soil Builders." Knight endorsed his name, apparently forged the endorsement of Simplot Soilbuilders, and deposited the check into his account at Yakima Federal.

Knight also sold crops to Connell Grain Growers in 1996. Connell Grain Growers paid for the crops with two checks, one in the amount of $22,494.73 and the other in the amount of $2,573.99. Connell Grain Growers made both checks payable to the order of "Rick Knight-Simplot Soil Build". Knight endorsed his name, apparently forged the endorsement of Simplot Soilbuilders, and deposited both checks into his account at Yakima Federal.

Simplot Soilbuilders, George DeRuyter & Sons Dairy, and Connell Grain Growers did not maintain accounts at Yakima Federal and the bank did not have a signature card for any of these businesses. When an instrument is payable in the alternative, Yakima Federal's internal policy does not require more than one endorsement nor does it require both payees to be present when the instrument is negotiated.

Simplot sued Yakima Federal for conversion alleging the bank improperly paid on forged endorsements. Yakima Federal moved for summary judgment, claiming the checks at issue were ambiguous as to whether they were payable to Rick Knight and Simplot Soilbuilders jointly or in the alternative and, because they were ambiguous, RCW 62A.3-110 provided the checks were payable in the alternative. Yakima Federal argued that, because only one signature was required and Knight properly endorsed the checks, whether the other endorsements may have been unauthorized or forged was irrelevant. The trial court agreed and granted summary judgment dismissal. The court reasoned:

[B]ecause in this case this check is presented, it does have a hyphen, and I think the hyphen raises an ambiguity. The statute says if there's an ambiguity, it's alternatively. It's or. It could be cashed. The bank is correct. The motion is granted.

Verbatim Report of Proceedings (RP) at 12-13.

Simplot appealed. In a published opinion, the Court of Appeals reversed the trial court, holding "a hyphen between the names of two payees on a check unambiguously means `and' so that the check is payable to all of them and may be negotiated only by all of them." J.R. Simplot, Inc. v. Knight, 93 Wash.App. 369, 372-73, 973 P.2d 472 (1998). Because it found the endorsements of both Knight and Simplot were required to properly cash the checks, the Court of Appeals reversed the summary judgment dismissal of Yakima Federal. The Court of Appeals subsequently denied Yakima Federal's motion for reconsideration. We granted Yakima Federal's petition for review and now reverse the Court of Appeals.

I. Hyphenated Payees

As this is clearly a question of law, our review is de novo. Mountain Park Homeowners Ass'n v. Tydings, 125 Wash.2d 337, 341, 883 P.2d 1383 (1994) (when reviewing a summary judgment order, all questions of law are reviewed de novo).

RCW 62A.3-110 governs the identification of persons to whom an instrument is payable and provides in part:

If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

RCW 62A.3-110(d) (emphasis added). Yakima Federal contends the use of a hyphen to separate multiple payees creates a patent ambiguity which allows instruments to be properly payable with only one valid endorsement pursuant to RCW 62A.3-110(d).

A. Legislative History of RCW 62A.3-110

Prior to 1994, the Uniform Commercial Code (UCC) did not explicitly address the issue of multiple payee ambiguity. Rather, former RCW 62A.3-116 was the only statutory provision governing multiple payee instruments and provided:

An instrument payable to the order of two or more persons

(a) if in the alternative is payable to any one of them and may be negotiated, discharged or enforced by any of them who has possession of it;
(b) if not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.

Former RCW 62A.3-116 (amended by LAWS OF 1993, ch. 229, § 18). Thus if a depositary bank was unable to demonstrate a check was payable to two or more persons in the alternative, the check was considered payable jointly and the bank faced liability for conversion if it paid the instrument with a single endorsement. See former RCW 62A.3-419 (amended by LAWS OF 1993, ch. 229, § 59).

In 1993 the Washington State Legislature enacted a new section to address the issue of multiple payee ambiguity. As noted above, RCW 62A.3-110(d) currently provides in relevant part: "If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively."1 RCW 62A.3-110(d) now requires the drawer of the instrument to clearly express his or her intent as to whether an instrument is payable jointly or in the alternative. UCC Official Comment 4 reflects this shifted burden, explaining:

The third sentence of subsection (d) is directed to cases in which it is not clear whether an instrument is payable to multiple payees alternatively. In the case of ambiguity persons dealing with the instrument should be able to rely on the indorsement of a single payee. For example, an instrument payable to X and/or Y is treated like an instrument payable to X or Y.

RCWA 62A.3-110, Cmt. 4 (emphasis added). Thus if the use of a hyphen to separate multiple payees renders the instrument ambiguous, a bank is not liable for conversion if it pays the instrument with the endorsement of a single payee.

B. Interpreting the Hyphen

The legal significance of the hyphen when used to separate multiple payees on a negotiable instrument is an issue of first impression in Washington. Although Washington courts have not addressed this precise issue, two earlier cases—both predating RCW 62A.3-110—examined the use of the comma and the virgule (or slanted line) between multiple payees.

In Swiss Baco Skyline Logging, Inc. v. Haliewicz, 18 Wash.App. 21, 567 P.2d 1141 (1977), the court was asked to determine whether a bank properly paid a check payable to the order of "Emil Haliewicz, Swiss Baco Skyline Logging, Inc." Although the plaintiff contended the payee designation constituted joint payee language, the court disagreed:

The comma which separates the two parties introduces a patent ambiguity onto the face of the instrument. Is the comma a substitute for the word "and" or for the word "or"? Does the comma simply associate Haliewicz as working for Swiss Baco in the sense of an identifying phrase?

Swiss Baco, 18 Wash.App. at 29-30, 567 P.2d 1141. Because the case was decided under a prior version of the UCC, the court resolved the ambiguity by considering evidence of the intent of the parties. However, this case remains instructive in describing the comma as a patently ambiguous mark. See also Public Citizen, Inc. v....

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