Callaway v. Hamilton Nat. Bank of Washington, 10908.

• Decision Date: 28 February 1952
• Docket Number: No. 10908.,10908.
• Parties: CALLAWAY v. HAMILTON NAT. BANK OF WASHINGTON et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

90 US App. DC 228, 195 F.2d 556 (1952)

CALLAWAY v. HAMILTON NAT. BANK OF WASHINGTON et al.

No. 10908.

United States Court of Appeals District of Columbia Circuit.

Argued October 22, 1951.

Decided February 28, 1952.

COPYRIGHT MATERIAL OMITTED

Keith L. Seegmiller, Washington, D. C., for appellant.

Philip S. Peyser, Washington, D. C., with whom Roger J. Whiteford, Washington, D. C., was on the brief, for appellee Hamilton Nat. Bank of Washington. John J. Wilson, Washington, D. C., also entered an appearance for that appellee.

George E. Monk, Washington, D. C., with whom Nelson T. Hartson, Washington, D. C., was on the brief, for appellees Federal Reserve Bank of Richmond and Continental Illinois Nat. Bank & Trust Co.

Charles Patrick Clark, Washington, D. C., for appellees First Nat. Bank of Dyer and Federal Deposit Ins. Corp.

Before EDGERTON, BAZELON and WASHINGTON, Circuit Judges.

WASHINGTON, Circuit Judge.

This controversy concerns the liability of a bank for honoring checks of its customer, where the endorsements are challenged as not being those of the intended payee. The case comes before this court on appeal from an order of the United States District Court for the District of Columbia, which on motion of the depository bank dismissed the customer's complaint on the ground that it set forth no claim upon which relief could be granted.¹ Rule 12(b)(6), Fed.Rules.Civ.Proc. 28 U.S. C.A.

The District Court had before it, in addition to the complaint, an affidavit submitted by plaintiff, and a stipulation between the parties by which certain documents were included in the record for all purposes, including those of the motion. The defendant Hamilton Bank served no answer and disputed none of the allegations contained in plaintiff's complaint and affidavit. It filed no papers laying a factual foundation for its defense. Instead, it chose to rely on plaintiff's own assertions, attempting on the basis of them to show that the purported cause of action was defective and to establish affirmative defenses which must usually be pleaded and proved. Thus there is no factual dispute on the face of the record.

Normally, Rule 12(b) requires that where "matters outside the pleading are presented to and not excluded by the court, the motion to dismiss for failure to state a cause of action shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to a summary judgment motion by Rule 56." Rule 12 (b), Fed.R.Civ.P. The District Court did not purport to follow the mandate of Rule 12(b); after argument, it entered an order dismissing the complaint. However, the extrinsic material presented was evidently considered by the District Court in reaching its decision, and both parties ask us to consider it. We think we may properly do so. Before the adoption of the quoted provisions of Rule 12(b) in 1948, material extrinsic to the pleadings was often considered on motions to dismiss, by both trial and appellate courts. E.g., Farrall v. District of Columbia A.A. U., 80 U.S.App.D.C. 396, 153 F.2d 647; National War Labor Board v. Montgomery Ward & Co., 79 U.S.App.D.C. 200, 203, 144 F.2d 528, 531, certiorari denied 323 U.S. 774, 65 S.Ct. 134, 89 L.Ed. 619; Boro Hall Corp. v. General Motors Corp., 2 Cir., 124 F.2d 822; and see Advisory Committee's Note to 1948 amendment to Rule 12(b). This practice has continued since the 1948 amendment. Washington v. McGrath, 86 U.S.App.D.C. 343, 182 F.2d 375.² And we think that a statement of our views as to the legal conclusions to be drawn from the record, including the extrinsic matter, will expedite the ending of this litigation.

In dealing with the record on this appeal, however, we must observe the usual rule that on a motion to dismiss, the plaintiff's allegations are to be taken as true and all reasonable favorable inferences arising therefrom are to be indulged. Dioguardi v. Durning, 2 Cir., 139 F.2d 774. A motion to dismiss should not be sustained "unless it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved in support of the claim" set forth by the plaintiff. Dennis v. Village of Tonka Bay, 8 Cir., 151 F.2d 411, 412. See also Dollar v. Land, 81 U.S.App.D.C. 28, 154 F.2d 307, affirmed 330 U.S. 731, 67 S.Ct. 1009, 91 L.Ed. 1209. Further, regardless of what label may be attached to this proceeding at this stage, we think we must dispose of it on the following basis: First, as indicated above, we must take plaintiff's assertions of fact as true — they are not disputed, nor are they patently false. Second, we must not attempt to resolve any conflict in the inferences to which they give rise, for to do so would go beyond the proper scope of either a motion to dismiss or one for summary judgment. Sartor v. Arkansas Gas Corp., 321 U.S. 620, 64 S.Ct. 724, 88 L.Ed. 967; Ottinger v. General Motors Corp., D.C.S.D. N.Y., 27 F.Supp. 508; Farrall v. District of Columbia A.A.U., supra. Third, we must determine whether, if all conflicting inferences were to be resolved in plaintiff's favor at a trial, he would nevertheless not be legally entitled to a recovery. For if such be the case, then clearly he has failed to state a claim on which relief can be granted Rule 12(b)(6), and he has also failed to raise an issue of material fact or show that defendant is not entitled to judgment as a matter of law Rule 56. Extrinsic material may, of course, operate to hurt rather than help the plaintiff's case.

Viewed in this light, the complaint and affidavit disclose that during September, 1947, appellant, a resident of Alexandria, Virginia, decided to invest in a home furnishings business then being carried on in Lansing, Illinois, by Peter and Bernice Hoeksema. At that time, he entered into an oral agreement with the Hoeksemas whereby a corporation would be formed under the title "Peter Hoeksema, Inc.," to which the Hoeksemas would transfer the assets and good will of their business, valued at $20,000. Appellant undertook to contribute $10,000 in cash, and stock was to be issued to the three incorporators in proportion to their respective contributions. The articles of incorporation were drawn and signed by the parties, and Peter Hoeksema was instructed to take the necessary further steps to complete the organization of the company under Illinois law.

Late in October of 1947, Peter Hoeksema advised appellant that the corporation would be formed and placed in operation about November 1. Relying on this information, appellant on October 25 (from his residence in Virginia) mailed Hoeksema a check drawn on the Hamilton Bank (doing business in the District of Columbia) in the amount of $1,000, payable to the order of "Peter Hoeksema, Inc.," and intended as the first payment toward his $10,000 contribution. In the belief that the corporation had been formed and that the Hoeksemas' furniture business had been transferred to it, appellant subsequently sent Hoeksema four more checks to complete his contribution to the corporation. These checks, each of which was payable to the order of "Peter Hoeksema, Inc.," were as follows: November 1, 1947, $4,000; November 20, 1947, $3,000; January 1, 1948, $500; and March 1, 1948, $1,500. On the back of each of the five checks is the hand-written endorsement "Peter Hoeksema, Inc.," as well as the stamped endorsements of various banks and trust companies. The first bank to handle the checks was the First National Bank of Dyer, Dyer, Indiana. All were honored by the defendant Hamilton Bank.

No directors' or stockholders' meetings were held by the new corporation and no stock certificates were issued. As time went on, appellant became anxious as to the affairs of the business, demanded that he be shown a financial statement, and requested that stock certificates be issued to him. Under various pretexts Peter Hoeksema put him off until finally, late in November, 1949, appellant sent a lawyer out to Illinois to investigate. As a result of the investigation, appellant learned on December 6, 1949, that Peter Hoeksema had not filed the articles of incorporation until December 6, 1947 (after three of the five checks had been issued), that he had not transferred any assets to the corporation or opened a bank account for it, and that the corporation had carried on no business and had received none of the proceeds of the checks. Appellant alleges on information and belief that the funds derived from the checks were in fact appropriated by the Hoeksemas for their own benefit and that their assets have been dissipated to the point where neither of them has sufficient funds to reimburse appellant for the checks.

The crucial allegation of the complaint is to the effect that "The name `Peter Hoeksema, Inc.' purporting to be an endorsement on the back of each of said checks, is not the endorsement of the payee thereof. * * *" Appellant bases his action on the undisputed premise that a depository bank must pay checks in strictest accordance with the direction of its depositor. National Metropolitan Bank v. Realty Appraisal & Title Co., 60 App.D.C. 86, 47 F.2d 982; U. S. Cold Storage Co. v. Central Mfg. District Bank, 343 Ill. 503, 175 N.E. 825, 74 A.L.R. 811. Appellant's theory is that his direction to the Hamilton Bank was to pay the checks sued upon only to the order of the corporation designated as payee — to wit: Peter Hoeksema, Inc.; that the named payee or its authorized agent did not endorse the checks; and that therefore payment was not made to the payee's order in accordance with the instructions. See Bank of New York v. Public Nat. Bank and Trust Co., 195 Misc. 812, 82 N.Y.S.2d 694, 92 N.Y.S.2d 620, affirmed 275 App. Div. 932, 90 N.Y.S.2d 701, affirmed 301 N.Y. 503, 93 N.E.2d 71. Essentially, appellant proceeds on the theory that the endorsements are forgeries, and it is only upon such a theory...