City of Wellston v. Jackson

• Citation: 965 S.W.2d 867
• Decision Date: 24 March 1998
• Docket Number: No. 72313,72313
• Parties: 35 UCC Rep.Serv.2d 237 The CITY OF WELLSTON, Missouri, Plaintiff-Appellant, v. Rose JACKSON, Jessie Wilson, Janie Duckworth and St. Louis Teachers Credit Union, Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 867

965 S.W.2d 867

35 UCC Rep.Serv.2d 237

The CITY OF WELLSTON, Missouri, Plaintiff-Appellant, v. Rose JACKSON, Jessie Wilson, Janie Duckworth and St. Louis Teachers Credit Union, Defendants-Respondents.

No. 72313.

Missouri Court of Appeals,

Eastern District,

Division Three.

March 24, 1998.

Michael A. Gross, Cynthia A. Sciuto, Norman A. Selner, St. Louis, for plaintiff-appellant.

Anthony B. Ramirez, Cynthia Smuda, St. Louis, for defendants-respondents Jackson, Wilson & Duckworth.

Gary W. Bomkamp, St. Louis, for defendant-respondent St. Louis Teachers Credit Union.

KAROHL, Judge.

Plaintiff, City of Wellston (City), appeals summary judgment in favor of defendant, St. Louis Teachers Credit Union (Credit Union) and dismissal with prejudice of its claims for failure to state a claim upon which relief can be granted in favor of defendants, Rose Jackson, Jessie Wilson and Janie Duckworth. We affirm the summary judgment in favor of Credit Union. We reverse the dismissals for failure to state a claim upon which relief can be granted and remand.

City filed a petition attempting to allege a cause of action to recover money from Rose Jackson, Jessie Wilson, Janie Duckworth, and Credit Union. The petition contained four counts. Counts I--III alleged defendants, Jackson, Wilson and Duckworth, committed fraud against City by stealing funds through the use of forged checks. In Count IV, City alleged Credit Union, as a collecting bank, was negligent in violating its duty to inform City of its receipt of the forged checks which were accepted for individual deposit into defendants' accounts. Credit Union filed a motion to dismiss or for summary judgment. Jackson, Wilson and Duckworth filed motions to dismiss for failure to state a claim upon which relief could be granted. Jackson, Duckworth and Wilson also separately filed motions for a more definite statement. On March 6, 1996, the trial court entered orders for dismissal with prejudice, but the orders failed to comply with Rule 74.01(a). City subsequently filed a motion to amend its petition and referred to its motion as one filed after a judgment. It did not recognize there was no existing judgment because the dismissal orders failed to comply with Rule 74.01(a). On May 3, 1996, the trial court denied City's motion to amend on the express basis that it was filed after dismissal. The trial court and the parties were not aware the motion to amend was filed after submission of the motions to dismiss, but before judgments of dismissal. Before the trial court attempted to enter judgments of dismissal complying with Rule 74.01(a), City filed a second motion to amend its petition and an amended petition. On February 24, 1997, the court denied City's second motion for leave to file an amended petition. On February 25, 1997, the trial court: (1) denied City's motion to set aside the "September 25, 1995," ¹ summary judgment for Credit Union; and, (2) sustained the motions of the individual defendants "to correct order of May 3, 1996," nunc pro tunc by denominating "said order" as a judgment and order. The order entered on May 3, 1996, was not the dismissal order which defendants wanted the court to convert into a judgment; it was the order which first denied City's motion to amend. The order of March 6, 1996, which dismissed the petitions of the individual defendants remains an order which fails to comply with Rule 74.01(a).

In its first point, City argues the trial court erred in granting Credit Union's motion for summary judgment on City's negligence claim because the petition adequately alleged each of the elements of a cause of action for negligence, in that the petition claimed that Credit Union: (1) had actual or constructive knowledge that checks aggregating some $140,000 drawn on City's account at another bank and deposited by Rose Jackson into her account at the Credit Union were illegitimate and fraudulent; (2) breached its duty to notify City of that information; and, (3) facilitated Jackson's theft of funds from City by accepting checks and collecting the funds which those checks represented from the drawee bank.

Credit Union filed a motion to dismiss or for summary judgment. It alleged the appropriate avenue of recovery for City was to pursue an action against its bank, the drawee, and the U.C.C. and applicable case law do not permit a direct action by the drawer of a check against a collecting bank. The judge so found and entered a judgment which complied with Rule 74.01(a). We agree and affirm the summary judgment for Credit Union.

On the pleadings and as a matter of law, Credit Union owes no legal duty to City. City pled common law negligence. The pleading alludes to an agreement between the employees of City and Credit Union, and an agreement between City and its employees, but does not allege a contractual relationship between City and Credit Union which would give rise to a contractual duty. There is no authority for a conclusion the collecting bank had a common law negligence duty to the drawer of a check. The legal relationship of a drawer and the collecting bank is circumscribed in the commercial code. The U.C.C. pre-empts the claims and defenses regulating negotiable instruments, bank deposits and collections. See, Consolidated Public Water Supply v. Farmers Bank, 686 S.W.2d 844, 853 (Mo.App.1985). In its pleading, City made no effort to allege a cause of action under the commercial code.

In Rizzo Motors, Inc. v. Central Bank of Kansas City, 825 S.W.2d 354 (Mo.App.1992), the western district of this court considered whether a drawer, as assignee of payee, had a direct cause of action for breach of warranty against the payee's bank, the collecting bank. In the absence of Missouri decisions regarding the issue, the court examined the approaches of other jurisdictions. It adopted the view that a drawer does not have a direct cause of action for breach of warranty against a collecting bank. In reaching its conclusion, the court examined the defenses provided for in the U.C.C. and observed that while it makes some sense to allow the drawer a direct action against a collecting bank for breach of warranty because circuity of action is avoided, allowing such an action would make the assertion of defenses difficult. Id. at 356. The court referred to White & Summers on this subject and noted:

[I]t seems most unlikely that the Code draftsmen intended the drawer to be regarded as "another payor." Apparently the draftsmen intended that the drawer have a suit against his drawee bank for improper payment and that the drawee should bear the burden of raising and arguing any defense, such as negligence, which would preclude the drawer from asserting forgery or the like. To hold that the warranties in 4-207 flow either directly or under a third-party beneficiary theory to the drawer, is to shift the burden of presenting these defenses to the depository or other collecting banks who would be likely defendants in such suit. As indicated before, it seems likely that the drawee is in the best position to prove negligence on the drawer's part, the drawee should therefore be made to do so, and that the drawer has no real complaint if he is limited to a suit against his drawee inasmuch as his own bank is likely to be a convenient defendant located in his own home town. For these reasons we think it unfortunate that some courts have extended the 4-207(1) warranty to the drawer. Some courts have explicitly refused to do so under 4-207.

Id. at 357, quoting, J. White & R. Summers, Uniform Commercial Code Sec. 15-9 (3d ed.1988). While City does not contend the warranties in section 400.4-207 RSMo 1994 run from Credit Union to City, as were the facts in Rizzo, the reasoning of the Rizzo court applies to the present case. The system of defenses established in the U.C.C. and the fact that the drawee, not the collecting bank, is in the best position to defend against the drawer, compel us to conclude City's appropriate cause of action for accepting and paying on the forged checks is against its bank, the drawee, and not an action for negligence against Credit Union. If Credit Union breached a duty or warranty it owed or warranted to the drawee bank, this may be resolved in an action between the drawee bank and...