Coeur d'Alene Mining Co. v. First Nat. Bank of North Idaho, 17565

• Decision Date: 11 October 1990
• Docket Number: No. 17565,17565
• Citation: 118 Idaho 812,800 P.2d 1026
• Parties: COEUR d'ALENE MINING COMPANY, a Maine corporation and Prichard Resources Company, an Idaho corporation, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF NORTH IDAHO, a National banking Association, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 1026

800 P.2d 1026

118 Idaho 812

COEUR d'ALENE MINING COMPANY, a Maine corporation and Prichard Resources Company, an Idaho corporation, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF NORTH IDAHO, a National banking Association, Defendant-Respondent.

No. 17565.

Supreme Court of Idaho.

Oct. 11, 1990.

Robert E. Covington, III, Coeur d'Alene, for plaintiffs-appellants.

Witherspoon, Kelley, Davenport & Toole, Coeur d'Alene, for defendant-respondent. Edward J. Anson argued.

JOHNSON, Justice.

This is a case involving checks. In deciding the case we are required to construe portions of the Uniform Commercial Code (the UCC) and the Uniform Fiduciaries Law (the UFL), as enacted in Idaho.

An agent was authorized to deposit checks payable to his principal in the principal's bank account. The agent endorsed in blank some of the checks payable to the principal and deposited them in the agent's personal account in a different bank. The principal has never recovered the amount represented by these checks. The principal sued the agent's bank. The trial court entered judgment in favor of the bank.

We hold that the trial court incorrectly ruled that the agent had implied authority to endorse the checks in blank. We also hold that the agent's bank had the duty to inquire whether the agent was committing a breach of his obligation to his principal by depositing the checks. We vacate the judgment of the trial court denying relief to the principal and remand the case to the trial court for further proceedings.

I.

THE BACKGROUND AND PRIOR PROCEEDINGS.

Coeur d'Alene Mining Company and Prichard Resources Company (referred to jointly as CDA) own land and mining claims in Shoshone County, Idaho. CDA's principal office is located in Massachusetts, where its president, Wilfred E. Gardner, resides. Gardner, his wife and a family trust own substantially all of the stock of CDA.

In September 1984, Gardner and James Aubert signed an agreement appointing Aubert "General Agent" with respect to CDA's land and mining claims in Shoshone County. The agreement designated Aubert as an independent consultant and contractor but did not grant Aubert the authority to sign contracts or to assume or create debts, liabilities or other obligations in the name or on behalf of CDA. Aubert's compensation was to be a percentage of the revenues received and collected from matters he originated. CDA reserved the right to approve or disapprove in advance the financial and other substantive terms of particular transactions.

On October 1, 1984, Gardner, as president of CDA, signed a letter addressed to Aubert confirming Aubert's appointment as "General Agent for [CDA] with respect to the administration and management of [CDA's] fee land and mining claims located in Shoshone County, Idaho."

Initially, Gardner authorized Aubert to receive checks payable to CDA and to forward the checks to Gardner. In a telephone conversation on December 13, 1984, in order to speed up the collection process on the checks, Gardner authorized Aubert to deposit checks payable to CDA in an account bearing the names of Gardner and his wife at the Idaho First National Bank in Post Falls, Idaho (the Idaho First account). Gardner instructed Aubert to endorse the checks for deposit to the Idaho First account by using the account number and the name of the company to which each check was payable and by signing Aubert's name as agent. For tax purposes, the Idaho First account bore CDA's tax identification number.

On the same evening as the telephone conversation with Aubert, Gardner sent Aubert a letter stating that Aubert should send the deposits to the Idaho First account and should mail Gardner a photocopy of each deposit slip and the deposited checks. Gardner also enclosed several deposit slips for the Idaho First account. Gardner and Aubert had no further communications regarding Aubert's authority to do business on behalf of CDA or his authority in connection with CDA's banking or financial activities.

Aubert deposited some checks payable to CDA in the Idaho First account, endorsing the name of the company to which the check was payable and his name as agent. Aubert sent Gardner copies of the deposit slips and copies of the front of the checks. Aubert did not send Gardner copies of the back of the checks where he had endorsed them. Gardner was unaware until October 1985 that Aubert had not endorsed the checks as Gardner had instructed him in the telephone conversation on December 13, 1984.

During the time he was an agent for CDA, Aubert maintained a personal checking account with First National Bank of North Idaho ^B in Kellogg. In November or December 1984, Aubert advised the manager of FNB in Kellogg that Aubert was the authorized general agent for CDA with full authority to transact all business for CDA in Idaho, including the authority to endorse checks made payable to CDA.

Commencing in December 1984, Aubert deposited in his personal account at FNB eleven checks payable to CDA totalling $53,137.35. Aubert endorsed these checks by signing the name of the company to which the check was payable and his name as agent. On one occasion, Aubert directed that FNB apply a portion of the deposit to make a payment on a loan he had at FNB. On another occasion he deposited checks and received cash for a portion of the amount represented by the checks. CDA has never recovered the amounts Aubert deposited in his personal account at FNB represented by the CDA checks.

CDA sued FNB alleging that Aubert had deposited the checks in FNB without authority. CDA claimed that FNB had violated its duty under the common law and the UCC by allowing Aubert to deposit the checks in his personal account. FNB contended in its answer, among other things, that I.C. § 68-309, a portion of the UFL, barred the action.

FNB moved for summary judgment. In ruling on this motion the trial court concluded that under the UCC, FNB would not be a holder in due course and would be liable to CDA. However, the trial court decided that I.C. § 68-309 took precedence over the UCC and denied the motion because there was an issue of fact as to whether Aubert had authority to endorse in blank checks payable to CDA. The trial court also ordered that certain facts were deemed established for the purposes of trial pursuant to I.R.C.P. 56(d). Among these facts were that "FNB had no actual knowledge that Aubert was committing a breach of his fiduciary obligations in depositing checks payable to CDA in Aubert's FNB account" and that "FNB had no knowledge of facts such that its action in depositing the checks payable to CDA in Aubert's personal account amounted to bad faith." The trial court's order stated that the only issues remaining for a trial to resolve were:

1. The nature and scope of Aubert's authorization to endorse checks payable to CDA.

2. If I.C. § 68-309 does not bar CDA's claims against FNB, the nature and extent of CDA's damages, if any.

The parties requested, and the trial court ordered, the first issue be severed and tried first. Following a trial on the first issue, the trial court ruled that Aubert had implied authority to endorse the checks payable to CDA in blank and denied CDA's claims against FNB. CDA appealed.

II.

THE RESULT IN THIS CASE WOULD BE THE SAME, WHETHER THE UCC OR THE UFL IS CONTROLLING.

CDA asserts that the UCC and not the UFL should be controlling in this case. We disagree. Furthermore, we conclude that the result would be the same, whether the UCC or the UFL is controlling.

In its decision denying FNB's motion for summary judgment, the trial court indicated that if the UCC rather than the UFL applied, FNB would not be a holder in due course and would be liable to CDA. The trial court then reasoned that I.C. § 68-309 is a specific statute dealing only with the actions of fiduciaries and banks in which they make deposits, while the provisions of the UCC that would apply to these circumstances are general in nature. In support of its decision to apply I.C. § 68-309, the trial court invoked Hook v. Horner, 95 Idaho 657, 661, 517 P.2d 554, 558 (1973), for the proposition that to the extent that there is a conflict, a specific statute prevails over a general statute.

The major premise of the trial court's analysis was that under the UCC, FNB would not be a holder in due course. Our review of the record indicates that the trial court probably established this premise in reliance on Von Gohren v. Pacific National Bank of Washington, 505 P.2d 467 (Wash.App.1973). CDA cited Von Gohren to the trial court during the hearing on FNB's motion for summary judgment.

In Von Gohren, the Washington Court of Appeals considered facts somewhat similar to those in this case. A bookkeeper received authority to endorse in blank checks payable to her employer and to deposit them in her employer's account. The bookkeeper endorsed and deposited some of these checks in her own account. The Washington Court of Appeals affirmed a decision of the trial court holding the bookkeeper's bank liable to the employer.

In construing the effect of the portion of the Washington version of the UCC that is identical to I.C. § 28-3-304(2), the court said:

RCW 62A.3-304(2) establishes notice where the fiduciary deals with the instrument for his (her) own benefit. The act of depositing the third party checks payable to her employer in her personal account is, we think, such a transaction. We can hardly conceive of a clearer case of "personal benefit" unless [the agent] actually used the checks to pay personal debts, which of course she is free to do when her account has been credited by the amounts represented by the third party checks.

Id. at 473.

In its supplemental memorandum in support of its motion for summary judgment filed after the hearing on its motion for summary judgment, FNB argued that Von Gohren was distinguishable from this case because Washington did not have a statute like the UFL. FNB referred to...