Associated Home & RV Sales, Inc. v. Bank of Belen

Citation294 P.3d 1276
Decision Date30 October 2012
Docket NumberNo. 30,829.,30,829.
PartiesASSOCIATED HOME AND RV SALES, INC., a New Mexico corporation, d/b/a Enchantment RV and Enchantment RV Service, a New Mexico corporation; Team Events, Inc., a New Mexico corporation; and MDM Company, Inc., a New Mexico corporation, Plaintiffs–Appellants, v. BANK OF BELEN, Defendant–Appellee.
CourtCourt of Appeals of New Mexico

OPINION TEXT STARTS HERE

Crowley & Gribble, PC, Clayton E. Crowley, Albuquerque, NM, for Appellants.

Parker & Hay, LLP, Stanley R. Parker, Topeka, KS, Aldridge, Grammer & Hammar, P.A., David A. Grammer, III, Albuquerque, NM, for Appellee.

OPINION

CASTILLO, Chief Judge.

{1} In this appeal, we address three issues. We consider for the first time whether NMSA 1978, Section 55–4–406 (1992) of New Mexico's Uniform Commercial Code (UCC) precludes common law claims for negligence and breach of contract in transactions involving forged checks. We also analyze the effects of Section 55–4–406's one-year statute of repose on its thirty-day limit for bringing actions involving the same serial forger. Lastly, we consider the district court's dismissal without prejudice of the count of fraud for lack of specificity. We conclude that the UCC does preclude the common law claim alleged in this case and affirm on that issue. We reverse the entry of summary judgment as to the statute of repose and consequently need not reach the issue regarding the dismissal of the fraud claim.

BACKGROUND

{2} Appellants are four corporations involved in the sales of recreational vehicles. The businesses are run by several family members and organized under the trade name Enchantment RV (Enchantment). In January 2003, Enchantment hired an employee (Employee) to assist with bookkeeping and to help balance the accounts of Enchantment's combined companies. In February 2003, Employee began forging checks on its accounts held at Bank of Belen (Bank) and, between February 2003 and October 2004, Employee forged 211 checks, mostly payable to herself or to “cash,” stealing $283,546.85 from Enchantment. About a year and a half into the scheme, in late October and early November 2004, Enchantment discovered the forgeries, notified Bank, and submitted affidavits to that effect. Bank refused to repay Enchantment for any of the losses. According to Bank, it had provided statements on a monthly basis, including photocopies of canceled checks, to Enchantment for its various accounts, thus relieving it of its obligation to pay under the UCC. Enchantment brought this action, alleging common law claims of negligence, fraud, misrepresentation, breach of contract, and a violation of the New Mexico Unfair Practices Act (UPA). In its second amended complaint, it also alleged negligence under the UCC.

{3} Bank filed a number of pretrial motions. On a motion to dismiss the first amended complaint, the district court dismissed all of the claims except for fraud after ruling that the common law and UPA claims were displaced by the liability scheme of the UCC. After allowing for a second amended complaint to add the claim under the UCC, the district court dismissed without prejudice the fraud claim as improperly pleaded under Rules 1–009 and 1–012(B)(6) NMRA. Enchantment did not renew its fraud claim. After a period of discovery, the court granted Bank's motion for summary judgment, concluding that Enchantment failed to raise a genuine issue of material fact on its UCC claim. The case was dismissed and this appeal followed.

DISCUSSIONI. UCC Section 55–4–406 Precludes Common Law Claims in This Instance

{4} This case presents an issue of first impression: whether Section 55–4–406 of the UCC precludes such common law claims as negligence and breach of contract under the set of circumstances presented here. We apply our de novo review to the question of “whether the district court applied the correct controlling legal principle to the facts and the court's application of that principle to the facts.” Sunnyland Farms, Inc. v. Cent. N.M. Elec. Coop., Inc., 2011–NMCA–049, ¶ 17, 149 N.M. 746, 255 P.3d 324,cert. granted,2011–NMCERT–005, 150 N.M. 667, 265 P.3d 718.

{5} Enchantment first contends that the district court erred in dismissing its common law claims, arguing that they are not preempted by Section 55–4–406 of the New Mexico UCC. Bank argues that the UCC provides a detailed and comprehensive scheme that allocates liability between a bank and its customers and provides banks with defenses to claims. Bank says that allowing common law claims to be brought in addition to actions under the UCC would frustrate the objectives of the Legislature in adopting the uniform law.

{6} A motion to dismiss is properly granted “only when it appears that the plaintiff cannot recover or be entitled to relief under any state of facts provable under the claim.” Valles v. Silverman, 2004–NMCA–019, ¶ 18, 135 N.M. 91, 84 P.3d 1056 (internal quotation marks and citation omitted). Whether the district court properly dismissed the claims is a question we review de novo. See id. ¶ 6.

{7} The UCC states that [u]nless displaced by the particular provisions of the [UCC], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy [,] and other validating or invalidating cause, supplement its provisions.” NMSA 1978, § 55–1–103(b) (2005). However, we have previously noted that “comprehensive legislation, prescribing minutely a course of conduct to be pursued and the parties and things affected, and specifically describing limitations and exceptions, is indicative of a legislative intent that the statute should totally supersede and replace the common law dealing with the subject matter.” Rutherford v. Darwin, 95 N.M. 340, 343, 622 P.2d 245, 248 (Ct.App.1980) (internal quotation marks and citation omitted), superseded by statute on other grounds as stated in Wisner Elevator Co. v. Richland State Bank, 862 So.2d 1112 (La.Ct.App.2003). Common law principles are not preserved “in an area which is thoroughly covered by the UCC simply because they are not expressly excluded.” Id.

{8} Article 4 of the UCC sets up a liability scheme and set of defenses to guide the relationship between a payor bank and its customers. See generallyNMSA 1978, §§ 55–4–401 to –407 (1961, as amended through 2009). A forged or altered check is not properly payable, and a bank is strictly liable for the resulting loss to a customer. Cf.§ 55–4–401(a) (“A bank may charge against the account of a customer an item that is properly payable.... An item is properly payable if it is authorized by the customer....”).

{9} Section 55–4–406(a), however, sets up a scale of liabilities that shift depending on the actions of the parties, and a bank may seek “safe harbor” from the above strict liability scheme of Section 55–4–401 if it makes statements of account available to the customer on a regular basis. Section 55–4–406 cmt. 1. If a bank regularly provides a statement of account with information sufficient for the customer to identify the forgery, the customer must be reasonably prompt in notifying the bank of any forgeries; if the customer does so within thirty days of receiving the statement, the bank remains strictly liable for the loss. See§ 55–4–406(a), (c). After that thirty-day period, however, the bank is liable only if the customer proves that the bank failed to exercise ordinary care in passing the forged item and that the bank's failure substantially contributed to the loss; in such a case, the loss is apportioned between the customer and the bank based on comparative negligence. See§ 55–4–406(d), (e). Regardless of any lack of ordinary care on the part of the bank, if a year or more has passed from the customer's receipt of the statement identifying the forgery, the customer is precluded from bringing any claim under the UCC and must bear the entire loss. See§ 55–4–406(f). The basis for the system of shifting liabilities triggered by the delivery of regular statements is explained in the comments to the statute.

One of the most serious consequences of failure of the customer to comply with the requirements of [S]ubsection (c) is the opportunity presented to the wrongdoer to repeat the misdeeds. Conversely, one of the best ways to keep down losses in this type of situation is for the customer to promptly examine the statement and notify the bank of an unauthorized signature or alteration so that the bank will be alerted to stop paying further items.

Section 55–4–406 cmt. 2.

{10} In all jurisdictions, the federal counterpart to our Section 55–4–406, U.C.C. § 4–406 [Rev.] (the Code), is intended to further the public policy of requiring customers to be vigilant in examining bank statements and to carry out the common law duty of reporting forgeries within a reasonable time. See 7 Lary Lawrence, Lawrence's Anderson on the Uniform Commercial Code § 4–406:5 (2007 revision). While no court in New Mexico has considered the specific issue of whether Section 55–4–406 precludes a common law claim, other jurisdictions that have dealt with the issue have come down on the side of preemption by the UCC. See, e.g., Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 798 (2d Cir.2011) (stating that Article 4 precludes common law claims that would impose liability inconsistent with the rights and liabilities expressly created by Article 4 while allowing an exception for a common law breach of contract claim in that instance); Halla v. Norwest Bank Minn., N.A., 601 N.W.2d 449, 451 (Minn.Ct.App.1999) (denying a common law conversion claim because parties in commercial transactions must be able to rely on the remedies provided by the Code” and there is “no reason to sacrifice the certainty and consistency of the [Code] remedies to preserve common law remedies”); Bank Polska Kasa Opieki, S.A. v. Pamrapo Sav. Bank, S.L.A., 909 F.Supp. 948, 956–57 (D.N.J.1995) (s...

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