Allied Ins. Center, Inc. v. Wauwatosa Sav. and Loan Ass'n
| Decision Date | 27 February 1996 |
| Docket Number | No. 95-0786,95-0786 |
| Citation | 200 Wis.2d 369,546 N.W.2d 544 |
| Parties | , 29 UCC Rep.Serv.2d 873 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. d |
| Court | Wisconsin Court of Appeals |
Appeal from a judgment of the circuit court for Milwaukee County; Michael P. Sullivan, Judge.
For the defendant-appellant the cause was submitted on the briefs of Sjostrom & Associates, with Kevin J. Sjostrom, of Brookfield.
For the plaintiffs-respondents the cause was submitted on the briefs of Frenn Law Office, S.C., with Thomas L. Frenn, of Milwaukee, and of counsel: Schulz & Duffey, S.C., with Daniel J. O'Brien, Milwaukee; Paul J. Polaski, Brookfield; and D. Sean O'Lochlayne (for involuntary-plaintiff-respondent), Milwaukee.
For the intervening-plaintiff-respondent the cause was submitted on the briefs of Kuchler Law Offices, with Gerard F. Kuchler, of Waukesha.
Before WEDEMEYER, P.J., and FINE and SCHUDSON, JJ.
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 court trial, 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.
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.
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) ().
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, § 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, STAT. 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...
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