Charter Title Corp. v. Crown Mortg. Corp., 14256-2-II

• Court: Court of Appeals of Washington
• Writing for the Court: ALEXANDER; SEINFELD, J., and MILTON COX
• Citation: 836 P.2d 846,67 Wn.App. 428
• Parties: , 19 UCC Rep.Serv.2d 247 CHARTER TITLE CORPORATION, Appellant, v. CROWN MORTGAGE CORPORATION; Northwest National Bank; Pacific First Federal Savings Bank; and Fleet Real Estate Funding Corporation, Respondent.
• Docket Number: No. 14256-2-II,14256-2-II
• Decision Date: 16 September 1992

Page 428

67 Wn.App. 428 836 P.2d 846, 19 UCC Rep.Serv.2d 247 CHARTER TITLE CORPORATION, Appellant,
v.
CROWN MORTGAGE CORPORATION; Northwest National Bank;
Pacific First Federal Savings Bank; and Fleet
Real Estate Funding Corporation, Respondent. No. 14256-2-II. Court of Appeals of Washington,
Division 2. Sept. 16, 1992.

[836 P.2d 847]

Page 429

Richard N. Johnson, and Johnson, Vomacka & Lacey, P.S., Vancouver, for appellant.

John R. Potter, and Horenstein & Duggan, P.S., Vancouver, for respondent.

ALEXANDER, Acting Chief Judge.

Charter Title appeals from a summary judgment dismissing its action against Northwest National Bank for negligent failure to supply a missing endorsement on a check which Charter deposited into its account at Northwest. We affirm.

Charter Title Corporation acted as the escrow to close the sale of a house between third parties. As the escrow, Charter Title was to hold loan monies from Crown Mortgage Corporation, which was financing the purchase. On December 31, 1987 Crown wrote a check on its checking account with Pacific First Federal to Charter Title for the loan proceeds in the amount of $52,678.

On January 4, 1988, an employee of Charter presented this check, along with 18 other checks, for deposit into its trust account at Northwest. Unfortunately, Charter had failed to endorse the check, and the teller at Northwest did not notice that the check was missing an endorsement. Later that day, the check was forwarded to the Federal Reserve system for collection although it was missing Charter's endorsement.

On that same day, without waiting for the check to clear, Charter disbursed the entire $52,678 by issuing checks to

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the seller's mortgage holder and paying the closing costs. Soon thereafter, Northwest received a computer notification from the Federal Reserve that Pacific First was returning the check because Charter's endorsement was missing. The check arrived at Northwest on January 11, 1988, a full week after Charter had first deposited the check and distributed the proceeds. A Northwest employee immediately stamped the back of the check "endorsement guaranteed" and transmitted it back to the Federal Reserve for collection. Unfortunately, [836 P.2d 848] this was too late to be of assistance to Charter.

Coincidentally, January 11, 1988 was the day that the Internal Revenue Service chose to levy upon Crown's account at Pacific First Federal. Pacific paid over to the IRS an amount which rendered the balance of Crown's account insufficient to pay the check. Crown failed thereafter to deposit sufficient funds to make the check good and the check has never been paid.

Charter then brought this action in Clark County Superior Court against Northwest National Bank, among others, alleging that the bank had been negligent in failing to supply the missing endorsement or in not returning the check to Charter for endorsement. It contended that if the check had not been delayed for a week by Northwest's failure, the check would have cleared before the IRS levied on Crown Mortgage's account. Charter argued that Northwest had established a course of dealing whereby it routinely supplied any missing endorsements on checks deposited by Charter. This course of dealing was said to create a duty of care on the part of Northwest, which it breached by failing to supply Charter's missing endorsement on the $52,678 check from Crown Mortgage.

Northwest moved for summary judgment. The matter came on for hearing and the trial court ruled that neither RCW 62A.4-202(1) (which imposes a general duty of care on banks when, inter alia, sending items for presentment) nor RCW 62A.4-205 (which allows depository banks to supply missing endorsements in order to speed up the collection

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process) creates an affirmative duty to put an endorsement guarantee stamp on unendorsed checks.

The trial court agreed in principle that in some circumstances, a course of dealing between the parties might create such a duty, but did not believe that Charter had presented sufficient evidence to raise such a factual issue in this case. At most, the trial judge indicated, the evidence showed that Northwest routinely supplied missing endorsements when unendorsed checks were returned by the Federal Reserve. Since that was precisely what Northwest had done here, there was no showing of any breach, and moreover, the check came back from the Federal Reserve too late to have saved Charter from its losses. The trial judge said:

On these affidavits, there is no inference, reasonable or otherwise, that Northwest Bank routinely supplied Charter Title's endorsement before sending checks in to the Fed for deposit. Without that inference, Plaintiff has not made or demonstrated a duty, based upon routine course of conduct, such that the failure to inspect and endorse this particular check when it was deposited would yield liability. Insofar then as we're dealing with the failure to inspect and endorse upon deposit, the Motion for Summary Judgment is granted.

Charter then argued that it needed more time to conduct discovery in order to show a course of dealing whereby Northwest routinely supplied missing endorsements upon deposit. Charter represented that it would go through all its checks, find the ones that had been stamped "endorsement guaranteed," and see how many of these had also been stamped "returned for missing...