Colonial Pacific Corp. v. Connecticut Nat. Bank

• Decision Date: 06 January 1992
• Docket Number: No. 90-35652,90-35652
• Citation: 952 F.2d 406
• Parties: NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. COLONIAL PACIFIC CORP., Plaintiff-Appellant, v. CONNECTICUT NATIONAL BANK, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 406

952 F.2d 406

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

COLONIAL PACIFIC CORP., Plaintiff-Appellant, v. CONNECTICUT NATIONAL BANK, Defendant-Appellee.

No. 90-35652.

United States Court of Appeals, Ninth Circuit.

Submitted Jan. 6, 1992. ^*

Decided Jan. 9, 1992.

Before JAMES R. BROWNING, D.W. NELSON and CANBY, Circuit Judges.

MEMORANDUM ^**

Colonial Pacific Corp. (Colonial) seeks to recover from its bank, Connecticut National Bank (CNB), the value of a check it wrote payable to "Thomas Refrigeration and Air Conditioning." The check was endorsed ¹ "Jeff Thomas/Thomas Refrigeration," and CNB paid out on the check from Colonial's account to Jeff Thomas' assignees. Jeff Thomas has no connection with Thomas Refrigeration and Air Conditioning (TRAC), ² and Colonial seeks to hold CNB liable for paying out on a fraudulent endorsement. Because we conclude that Jeff Thomas and not TRAC was the intended payee, and therefore that the check was "properly payable" within the meaning of U.C.C. § 4-401, we affirm the grant of summary judgment for CNB.

This Court reviews a district court's grant of summary judgment de novo. T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 629-30 (9th Cir.1987). Summary judgment is appropriate only if "there is no genuine issue of material fact" and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

Connecticut law governs this Oregon diversity action because CNB is located in Connecticut. See U.C.C. § 4-102(2), Conn.Gen.Stat. § 42a-4-102(2), Ore.Rev.Stat. 74.1020(2). Connecticut has adopted the Uniform Commercial Code (U.C.C.). Under the U.C.C., a bank may charge the account of its customer only for items which are "properly payable." U.C.C. § 4-401(1), Conn.Gen.Stat. § 42a-4-401(1). A bank is strictly liable to its customer for funds it pays out over a check not "properly payable." See, e.g., Lincoln Nat'l Bank & Trust Co. v. Bank of Commerce, 764 F.2d 392, 395-97 (5th Cir.1985); American Nat'l Bank v. Stanfill, 205 Cal.App.3d 1089, 252 Cal.Rptr. 861, 865 (1988). Thus, we must determine whether the check as endorsed was "properly payable."

Colonial first advocates a per se rule: that courts not look beyond the "pay-to" order on the check in determining whether an endorsement is proper and therefore whether the payee bank is liable. Whatever the merits of such a rule, there is no evidence that Connecticut has adopted it. Indeed, a number of courts have been willing to overlook defects in the endorsement ranging from spelling errors, see British Caledonian Airways v. First State Bank, 819 F.2d 593, 597-98 (5th Cir.1987), to endorsement as a sole proprietorship rather than a corporation, see Coulter Electronics, Inc. v. Commercial Bank of Cobb County, 727 F.2d 1078, 1079-80 (11th Cir.1984), to endorsement in a completely different name, see Perini Corp. v. First Nat'l Bank of Habersham County, 553 F.2d 398, 412-13 (5th Cir.1977), to a failure to endorse at all, see Ohio Bell Telephone Co. v. BancOhio Nat'l Bank, 27 Ohio App.3d 8, 499 N.E.2d 327, 330 (1985). We are not free to create for Connecticut a rule other U.C.C. jurisdictions have rejected.

Instead, the rule is that a bank is not liable for paying out on an endorsement, even if forged, if the money is received by the intended payee for the intended purpose. See, e.g., First City Nat'l Bank v. FDIC, 782 F.2d 1344, 1348 (5th Cir.1986); Bank One v. Hochstadt, 515 So.2d 332, 333 (Fla.App.1987); Eatinger v. First Nat'l Bank of Lewiston, 199 Mont. 377, 649 P.2d 1253, 1255 (1982). Here, Jeff Thomas, rather than TRAC, received the money to pay for the coolers which were built and installed in Norman's Grocery. The undisputed admissible facts in the record establish, however, that in the circumstances of this case Jeff Thomas and not TRAC was the intended payee.

It was Jeff Thomas who contacted Colonial's broker and offered to sell the cooling units to Colonial, which in turn would lease them to Norman's grocery. Although Jeff Thomas used a TRAC invoice, when Colonial called its broker to get a mailing address for "TRAC," the broker gave it Jeff Thomas' address at the Normans' main store. Jeff Thomas also wrote "Thank you, Jeff Thomas" on the TRAC invoice. Jeff Thomas, and not TRAC, actually supervised the construction and installation of the cooling units at Norman's grocery. ³ In his affidavit, TRAC president Thomas Chancey disclaimed any connection whatsoever to the transaction, and stated that TRAC had no interest in the check made out to TRAC. Thomas, on the other hand, had provided the cooling units for which Colonial was paying. It would defy all logic to conclude that TRAC rather than Jeff Thomas was the intended payee merely because the check was made out to TRAC, the name on the invoice.

We think the reasoning of the Fifth Circuit in Perini is persuasive. In that case, someone named Quisenberry had endorsed and appropriated checks made out to "Quisenberry Contracting Co." and "Southern Contracting Co." The court wrote that:

[A] bank does not become accountable for every...