Bank of Southern Maryland v. Robertson's Crab House, Inc.

• Decision Date: 12 July 1978
• Docket Number: No. 1027,1027
• Citation: 39 Md.App. 707,389 A.2d 388
• Parties: , 24 UCC Rep.Serv. 702 BANK OF SOUTHERN MARYLAND v. ROBERTSON'S CRAB HOUSE, INC.
• Court: Court of Special Appeals of Maryland

Page 707

39 Md.App. 707

389 A.2d 388, 24 UCC Rep.Serv. 702

BANK OF SOUTHERN MARYLAND v. ROBERTSON'S CRAB HOUSE, INC.

No. 1027.

Court of Special Appeals of Maryland.

July 12, 1978.

Paul F. Strain, Baltimore, with whom was Thomas C. Carrico, LaPlata, on the brief, for appellant.

Thomas C. Hayden, Jr., LaPlata, for appellee.

Argued before LOWE, MELVIN and MacDANIEL, JJ.

MELVIN, Judge.

This appeal is from an order of the Circuit Court for Charles County (Bowling, J.) dated October 5, 1977, granting summary judgment in favor of Robertson's Crab House, Inc. (appellee) and against the Bank of Southern Maryland (appellant) in the amount of twelve thousand four hundred seventy-four dollars and sixty-six cents ($12,474.66) and costs of the proceeding. ¹ The ultimate issue for our determination is, of course, whether summary judgment was properly granted. We think it was, and will affirm the judgment below.

Md.Rule 610 d 1 provides that summary judgment

"(S)hall be rendered forthwith if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to a judgment as a matter of law."

As noted by the Court of Appeals in Washington Homes, Inc. v. Interstate Land Development Co., 281 Md. 712, 717-18, 382 A.2d 555, 557 (1978):

"In reviewing the propriety of the trial court's action on a motion for summary judgment, the appellate court is concerned with whether there was a dispute as to any material fact, and if not, whether the moving party was entitled to judgment as a matter of law. In considering the matter, the duly shown facts which would be admissible in evidence and all reasonable inferences deducible therefrom must be considered in a light most favorable to the party opposing the motion and against the party making the motion. See Rooney, (V. Statewide Plumbing ) 265 Md. (559) at 563-564, 290 A.2d 496; Shatzer, (V. Kenilworth Warehouses ) 261 Md. (88) at 95, 274 A.2d 95; Brown, (V. Suburban Cadillac ) 260 Md. (251) at 255, 272 A.2d 42."

The pleadings, depositions, admissions and affidavits on file in the instant case establish the following undisputed facts: Robertson's Crab House, Inc. is a body corporate of the State of Maryland whose principal place of business is at Popes Creek, Newburg, Charles County, Maryland. Its president is Joseph R. Robertson and its vice-president is George W. Robertson (Joseph's father). Prior to Robertson's incorporation in 1974, the business was operated as a sole proprietorship by George Robertson.

For approximately 21 years prior to incorporation, George Robertson employed the services of Jennings L. Hanson as the accountant for Robertson's Crab House. Mr. Hanson's duties included taking care of books, balance sheets, and quarterly and yearly tax returns for Robertson's. Mr. Hanson also reconciled the monthly bank statements for the business, and picked up the monthly statements at the bank. In the performance of these duties, Hanson would visit the Bank of Southern Maryland twice a month on Robertson's behalf: once to pick up the monthly statements, and once to make deposits into the Bank's tax and loan account for federal withholding and social security taxes. ²

Upon its incorporation in 1974, Robertson's Crab House, Inc. continued to employ Hanson in essentially the same capacity in which he was employed prior to incorporation. Hanson continued to visit the Bank twice monthly on Robertson's behalf, and continued to reconcile the monthly statements. After Hanson reconciled the monthly statements, they were given to Joseph Robertson, who kept them in the file cabinet at the corporation office. Neither Robertson nor anyone else checked Hanson's reconciliations. Joseph Robertson often signed checks in blank, and allowed Hanson to fill in the amounts. Hanson was never, however, authorized to sign any checks on behalf of Robertson's Crab House, Inc. or to make deposits into any account other than the tax and loan account. The officers and employees of the Bank of Southern Maryland were aware that Hanson had no authority to sign checks on behalf of Robertson's. ³

Between July, 1974 and September, 1975, Hanson presented the eleven checks here involved to the Bank of Southern Maryland. The checks were signed by Joseph Robertson, and were made payable to the Bank of Southern Maryland, as they were intended to be deposits of withholding taxes to the Bank's tax and loan account. At least one of the eleven checks, and perhaps as many as ten, were signed in blank by Joseph Robertson and filled in by Hanson.

When Hanson presented these checks to the Bank, the Bank permitted him on eight occasions to deposit a portion of the check proceeds to the credit of Robertson's tax and loan account number and the remainder to either Hanson's personal accounts, or to the credit of tax and loan account numbers of other businesses for whom Hanson was also bookkeeper. On two occasions, the entire amount of the checks was deposited to Hanson's personal account, and on one occasion, the Bank allowed Hanson to purchase a cashier's check (in the amount of $2,500.00 by adding $75.00 in cash to the $2,425.00 amount of the check made payable to the order of the Bank), made payable to a designee of Hanson. ⁴. On none of these eleven occasions did the Bank require Hanson to endorse the check or make inquiry to Robertson's Crab House, Inc. of Hanson's authority to so make use of Robertson's funds. The total amount of the funds diverted by Hanson was $12,474.66 the exact amount for which summary judgment was entered against the Bank.

In January of 1976, Joseph Robertson did check Hanson's reconciliations, and eventually discovered that something was amiss. Robertson noticed that the amounts on certain checks and the corresponding check stubs were different; that certain checks and stubs were missing; that certain checks were altered; and that certain of the stubs had ledger numbers on them indicating the account into which Hanson had diverted the funds. No check was made on Hanson prior to January of 1976 because Robertson trusted Hanson completely.

On October 27, 1976, Robertson's Crab House, Inc. filed a declaration against the Bank alleging breach of contract and negligence in the Bank's payment of these eleven checks. On November 16, 1976, the Bank filed a general issue plea, and also pleaded limitations. A hearing was held on Robertson's motion for summary judgment on January 27, 1977, after which the motion was granted. A timely appeal was noted to this Court. In an effort to demonstrate that summary judgment was improperly granted, the Bank presents three questions for our consideration:

"I. Did not the Bank conduct Robertson's transactions in a manner which was consistent with the duties to its customer as established by the course of conduct between them?

II. Did not Robertson's negligence prior to the transaction facilitate the fraud and preclude recovery?

III. Did not Robertson's negligence subsequent to each check transaction bar its recovery?"

We will consider each of these questions, but will discuss questions two and three together. As previously noted, however, we think Judge Bowling properly granted the motion for summary judgment.

I

Appellant first contends that it conducted Robertson's transactions in a manner which was consistent with its duties to its customer as established by the course of conduct between them. Simply stated, the Bank contends that it was not negligent in dealing with Robertson's funds. We disagree.

In Taylor v. Equitable Trust Co., 269 Md. 149, 155-56, 304 A.2d 838, 842 (1973) the Court of Appeals set out the relationship between a bank and its depositor:

"The relation between a bank and its depositor is a legal one. It is broadly defined as being that of debtor and creditor. Keller v. Fredericktown Sav. Institution, 193 Md. 292, 296, 66 A.2d 924 (1949), the rights of the depositor and the liability of the bank being contractual, Pritchard v. Myers, 174 Md. 66, 76, 197 A. 620 (1938), but See Note, Negotiable Instruments: Payment of Materially Altered Checks: Bank Not Liable to Depositor in Tort, 40 Cornell L.Q. 795 (1955). Unless modified by the parties the contract is that implied in a banking relationship, Magness v. Equitable Trust Co., 176 Md. 528, 531, 6 A.2d 241 (1939). For a breach of this contract, an action in tort will lie, Siegman v. Equitable Trust Co., 267 Md. 309, 313, 297 A.2d 758 (1972), following in the venerable footsteps of Rolin v. Steward, 14 C.B. 595, 139 Eng.Repr. 245(1854) and Marzetti v. Williams, 1 B & AD 415, 109 Eng.Repr. 842 (1830).

While this line of cases dealt primarily with wrongful dishonor of a depositor's checks, we see no reason why the same general principles are not equally applicable to a wrongful disbursement of funds belonging to a depositor. See General Apparel Sales Corp. v. Chase Manhattan Bank, NA, 321 F.Supp. 891 (S.D.N.Y.1970), where recovery was allowed when the bank accepted deposits of General Apparel's funds after the account had been closed. See also Note, 40 Cornell L.Q., Supra at 801; Comment, Bank Not Liable in Tort to Depositor for Honoring Forged or Altered Check, 6 Syracuse L.Rev. 365, 367-68 (1955). " (Footnote omitted).

See also University National Bank v. Wolfe, 279 Md. 512, 514-15, 369 A.2d 570 (1977); Gillen v. Maryland National Bank, 274 Md. 96, 101-102, 333 A.2d 329 (1975).

That a bank must use ordinary care in disbursing a depositor's funds was made clear in Taylor v. Equitable Trust Co., supra, 269 Md. at 155, 304 A.2d at 841 (quoting from a Comment in 2 Bender's U.C.C. Service, Hart and Willier § 12.35, at 128-29 (1972)):

" 'Nowhere in the Code does it say in so many words that a bank, whether a collecting bank or payor bank, is liable for negligently paying an item. Hints, however, abound. They start with Section 1-103, providing that common-law rules of...