Berthot v. Security Pacific Bank of Arizona

Decision Date05 September 1991
Docket NumberNo. 1,CA-CV,1
Citation170 Ariz. 318,823 P.2d 1326
Parties, 15 UCC Rep.Serv.2d 973 Mary Janae BERTHOT, Plaintiff/Appellant, v. SECURITY PACIFIC BANK OF ARIZONA, an Arizona corporation, f/k/a the Arizona Bank, Defendant/Appellee. 90-043.
CourtArizona Court of Appeals
OPINION

SHELLEY, Judge.

Plaintiff/Appellant Mary Janae Berthot (Berthot) appeals from the trial court's judgment in favor of Defendant/Appellee Security Pacific Bank of Arizona (the Bank) wherein the court held that A.R.S. § 47-3419 (U.C.C. § 3-419) has displaced the common law negligence claim in the circumstances presented in this case and that the statute of limitations on Berthot's conversion claim had run. We hold that a common law negligence claim may not be brought when the cause of action falls under A.R.S. § 47-3419. Therefore, we affirm the judgment of the trial court.

I. FACTS AND PROCEDURE BELOW

In January, 1987, Berthot appeared on a criminal charge, and, pursuant to Rule 11.1, Arizona Rules of Criminal Procedure, the trial court found that Berthot was not competent to stand trial in the criminal proceedings. The court committed Berthot to the supervision of the Correctional Health Services in the Maricopa County Jail. The court subsequently permitted Berthot's criminal defense attorney to withdraw.

Berthot had advanced her attorney $6,165 in fees. In February, 1987, the attorney refunded the fees to Berthot by checks written on his account with the Bank in the amounts of $4,150 and $2,015. On or about March 1, 1987, Berthot's father allegedly cashed the two checks at a branch office of the Bank. Berthot maintains that she did not endorse the checks, that her endorsements were forged and that the $6,165 was wrongfully paid to her father.

On March 23, 1987, the trial court found that Berthot was competent to stand trial on the criminal charges. On April 15, 1987, the court released Berthot from custody "with the understanding that [Berthot] has been accepted for placement in a residential treatment facility and ... shall reside at that facility." Berthot left the treatment facility in October or November of 1987.

On August 30, 1989, Berthot filed a complaint in which she alleged that the Bank negligently and carelessly cashed the two checks that were payable to Berthot based upon a forged endorsement and wrongfully paid the proceeds of the checks to someone other than Berthot. She also alleged that the action arose out of contract between the Bank and Berthot and that she thus was entitled to recover her attorney's fees and costs incurred in the action pursuant to A.R.S. § 12-341.01.

The Bank filed a motion to dismiss, or alternatively, motion for summary judgment. The Bank requested the trial court "to dismiss the complaint since it fails to state a claim upon which relief can be granted." The Bank first contended that if it wrongfully paid the proceeds of Berthot's checks to a third party based on forged endorsements, its liability was based on conversion pursuant to A.R.S. § 47-3419, not common law negligence. Second, the Bank argued that Berthot's statutory conversion claim was barred by either the one-year statute of limitations for statutory claims pursuant to A.R.S. § 12-541 or the two-year limitation period for common law conversion claims pursuant to A.R.S. § 12-542.

Berthot responded that the motion was not a motion to dismiss because it required the court to consider extrinsic facts regarding when Berthot became competent. She argued that it was actually a motion for summary judgment and that it did not comply with Rule 56, Arizona Rules of Civil Procedure, because the Bank did not include a statement of facts and the documents attached to the motions were not admissible. In its judgment, the trial court stated, among other things, "[I]t is ordered granting defendant's motion to dismiss or alternatively granting defendant's motion for summary judgment; ..." The motion to dismiss was based solely on the pleadings. The court found as a matter of law that the Uniform Commercial Code (U.C.C.) provisions on conversion displaced the common law negligence claim. Berthot contended that pursuant to A.R.S. §§ 1-201 and 47-1103, the adoption of the U.C.C. in Arizona did not displace any common law cause of action.

The trial court found that the U.C.C. had displaced the common law negligence claim and that the statute of limitations had run. The court awarded the Bank $3,477.50 in attorney's fees and $77.50 in costs. Berthot appealed from the judgment granting the Bank's motions and awarding the Bank its fees and costs. Since we find that the trial court did not err in granting the motion to dismiss, it is not necessary to discuss the issue raised with respect to the court's order granting the alternative motion for summary judgment on the statute of limitations issue.

II. DISCUSSION

Berthot contends that the trial court erred in ruling that A.R.S. § 47-3419 1 (U.C.C. § 3-419) has displaced the common law negligence claim. This is a question of first impression in Arizona.

On appeal, Berthot argues that, unlike other states, Arizona has not taken the position that U.C.C. § 3-419 displaces any common law remedies a person might have. She contends that in Arizona, statutory remedies are to be merely cumulative to common law remedies unless the statutory remedy explicitly provides that it is to be exclusive.

Berthot asserts that A.R.S. §§ 1-201 and 47-1103 (U.C.C. § 1-103) require that statutory remedies be merely cumulative to common law remedies unless the statutory remedy expressly provides that it shall be exclusive. We disagree. A.R.S. § 1-201 reads:

The common law only so far as it is consistent with and adapted to the natural and physical conditions of this state and the necessities of the people thereof, and not repugnant to or inconsistent with the constitution of the United States or the constitution or laws of this state, or established customs of the people of this state, is adopted and shall be the rule of decision in all courts of this state.

Based on this section, if the common law is inconsistent with the statutory laws of this state, the common law does not apply. A.R.S. § 47-1103 (U.C.C. § 1-103) provides:

Unless displayed [sic displaced] by the particular provisions of this title, 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, or other validating or invalidating cause shall supplement its provisions.

Thus, when a provision of the Arizona U.C.C. displaces the common law on that issue, the common law no longer applies. When the common law is displaced by a statute, it is also inconsistent with the laws of this state. Accordingly, Berthot is incorrect in her assertion that the action for conversion specified in U.C.C. § 3-419 does not displace her action against the Bank for common law negligence.

The Bank argues that the U.C.C. remedy and cause of action for conversion found in U.C.C. § 3-419 displaces common law theories of recovery based on the same activity. We agree. To support this contention, the Bank primarily relies on Equitable Life Assurance Society of the United States v. Okey, 812 F.2d 906 (4th Cir.1987), in which the court held that the common law negligence cause of action has been displaced by the Code conversion claim in § 3-419.

In Okey, the defendant bank paid a third party over a forged endorsement on checks written to the plaintiff. The court interpreted the U.C.C. provisions adopted in South Carolina that are identical to those codified at A.R.S. §§ 47-1103 and -3419. The court stated:

Under § 36-3-419 of the South Carolina Commercial Code, an action for conversion lies when an instrument is paid on a forged indorsement. An unauthorized indorsement receives the same treatment as a forgery. Anderson, Uniform Commercial Code § 3-419.4 (3d ed. 1981). Although styled a 'conversion,' an action under § 36-3-419 effectively subsumes both conversion and negligence claims based on payment over a forged or unauthorized indorsement in that § 36-3-419(3) encompasses the element of due care that is a key issue under a negligence theory. Section 36-3-419(3) provides that

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.

The 'reasonable commercial standards' that limit a collecting or depositary bank's liability under § 36-3-419(3) has been interpreted to be the same 'due care' that provides the standard of care in a negligence action. Anderson, supra § 3-419.35 (the Code language in § 3-419(3) is identified with the common law concept of negligence). The allocation of the burden of proving due care under § 3-419(3), however, differs from the allocation of that burden in a negligence action and to that extent conflicts with the common law. Section 36-3-419(3) makes reasonable conduct an affirmative defense to be proved by the defendant collecting or depositary bank. National Bank of Georgia v. Refrigerated Transport Co., 147 Ga.App. 240, 248 S.E.2d 496, 499 (1978) (quoting Berkheimers, Inc. v. Citizens Valley Bank, 270 Or. 807, 529 P.2d 903 (1984)). In a common law action for negligence, on the other hand, the plaintiff has the burden of establishing a lack of due care as one of the essential elements of his claim....

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