Continental Cas. Co. v. Huron Valley Nat. Bank

• Decision Date: 22 August 1978
• Docket Number: Docket No. 77-1893
• Citation: 271 N.W.2d 218,85 Mich.App. 319
• Parties: , 25 UCC Rep.Serv. 186 CONTINENTAL CASUALTY COMPANY, an Illinois Corporation, as assignee and subrogee of Electric Apparatus Co., a Michigan Corporation, Plaintiff-Appellant, v. HURON VALLEY NATIONAL BANK, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 218

271 N.W.2d 218

85 Mich.App. 319, 25 UCC Rep.Serv. 186

CONTINENTAL CASUALTY COMPANY, an Illinois Corporation, as assignee and subrogee of Electric Apparatus Co., a Michigan Corporation, Plaintiff-Appellant, v. HURON VALLEY NATIONAL BANK, Defendant-Appellee.

Docket No. 77-1893.

Court of Appeals of Michigan.

Aug. 22, 1978.

Released for Publication Nov. 13, 1978.

Vandeveer, Garzia, Tonkin, Kerr & Heaphy, P. C. by John M. Heaphy, Detroit, for plaintiff-appellant.

Rollins, White & Rollins by Thomas G. Rollins, Detroit, for defendant-appellee.

Before J. H. GILLIS, P. J., and D. E. HOLBROOK, Jr. and KELLY, JJ.

D. E. HOLBROOK, Jr., Judge.

The major issue in this case is what statute of limitations applies when a check is converted?

There are no factual disputes and plaintiff appeals the lower court's grant of accelerated judgment in favor of defendant bank. Plaintiff Continental Casualty is the assignee and subrogee of the now-bankrupt Electric Apparatus Company which was located in Livingston County during its years of operation. This action arises out of a scheme of a bookkeeper, David Roth, who was employed by Electric Apparatus Company. In 1970 in nearby Washtenaw County Mr. Roth filed an assumed name certificate as "David Roth d/b/a Electric Apparatus" and opened an account in the name of David Roth d/b/a Electric Apparatus at defendant Huron Valley National Bank. For almost two years, Mr. Roth intercepted checks made payable to Electric Apparatus Company, indorsed them and deposited them in the account at defendant bank.

Subsequently Electric Apparatus Company sustained financial losses and was placed in bankruptcy in 1972 and operated under a receiver until 1974. In 1974, Roth's scheme was discovered and plaintiff insurance company paid Electric Apparatus Company pursuant to its fidelity bond. Plaintiff, as assignee and subrogee, brought suit for conversion against the bank in January 1976.

The lower court concluded that plaintiff's conversion action was one for "injury to property" and therefore barred by the three-year statute of limitations contained in M.C.L. § 600.5805(7); M.S.A. § 27A.5805(7). Plaintiff appeals and argues that the proper statute of limitations is the residual six-year limitation period contained in M.C.L. § 600.5813; M.S.A. § 27A.5813.

The lower court held the following statute of limitations, M.C.L. § 600.5805; M.S.A. § 27A.5805, controlling:

"Sec. 5805. No person may bring or maintain any action to recover damages for injuries to persons or property unless, after the claim first accrued to himself or to someone through whom he claims, he commences the action within the periods of time prescribed by this section.

"(7) The period of limitations is 3 years for all other actions to recover damages for injuries to persons and Property." (Emphasis added).

The application of this statute turns on whether plaintiff's action for conversion can be characterized as an "injury to property". This is a question of first impression in Michigan.

It is clear under the Uniform Commercial Code that when a check is paid on a forged indorsement, an action lies for conversion. In relevant part M.C.L. § 440.3419(1)(c); M.S.A. § 19.3419(1)(c) reads:

"(1) An instrument is converted when

"(c) it is paid on a forged indorsement."

For further elaboration we look to Official UCC Comment 3 to M.C.L. § 440.3419; M.S.A. § 19.3419:

"3. Subsection (1)(c) is new. It adopts the prevailing view of decisions holding that payment on a forged indorsement is not an acceptance, but that even though made in good faith it is an exercise of dominion and control over the instrument inconsistent with the rights of the owner, and results in liability for conversion."

This definition is consistent with Michigan cases which define the tort of conversion as an "act of dominion wrongfully exerted over another's personal property". Nelson & Witt v. Texas Co., 256 Mich. 65, 70, 239 N.W. 289, 291 (1931); Thoma v. Tracy Motor Sales, Inc., 360 Mich. 434, 438, 104 N.W.2d 360 (1960); Embrey v. Weissman, 74 Mich.App. 138, 143, 253 N.W.2d 687 (1977).

It is also clear that as the payee of the converted checks, Electric Apparatus is the rightful "owner" of the checks. See White and Summers, Uniform Commercial Code (1972), § 15-4, p. 499. This concept of ownership is consistent with the characterization of a check as "property". As noted in Official UCC Comment 2 to M.C.L. § 440.3419; M.S.A. § 19.3419:

"A negotiable instrument is the property of the holder. It is a mercantile specialty which embodies rights against other parties, and a thing of value."

Although in a different setting, now Justice Levin has stated:

"When (the defendant) deliberately obliterated plaintiff's interest in the check, it would appear on the present record that it converted property belonging to the plaintiffs * * *." (emphasis supplied).

Warren Tool Company v. Stephenson, 11 Mich.App. 274, 298, 161 N.W.2d 133, 147 (1968). This is consistent with the view of courts in other jurisdictions which have deemed checks to be "property". Fabricon Products v. United California Bank, 264 Cal.App.2d 113, 116, 70 Cal.Rptr. 50, 53 (1968).

Plaintiff argues that the three-year statute of limitations for injuries to persons or property is limited to cases where there is a physical or tangible injury, therefore, M.C.L. § 600.5805(7); M.S.A. § 27A.5805(7) does not apply in the present case since conversion involves no physical or tangible injury. We disagree. Plaintiff's argument was expressly rejected in Stringer v. Sparrow Hospital, 62 Mich.App. 696, 233 N.W.2d 698 (1975), lv. den. 395 Mich. 768 (1975). See also Glowacki v. Motor Wheel Corp., 67 Mich.App. 448, 459-460, 241 N.W.2d 240 (1976); Campos v. General Motors Corp., 71 Mich.App. 23, 26, 246 N.W.2d 352 (1976). In the above cited cases, various panels have recognized that the three-year statute applies to several types of "injuries" which involve no physical or tangible damage.

Although not controlling and although in the context of different statute of limitation schemes, courts in California, New York and Tennessee have adopted a three-year statute of limitations for conversion actions based on forged indorsements. Fabricon Products, supra; Forman v. First National Bank of Woodridge, 66 Misc.2d 432, 320 N.Y.S.2d 646 (1971); Gerber v. Manufacturers Hanover Trust Co., 64 Misc.2d 687, 315 N.Y.S.2d 601 (1970); McConnico v. Third National Bank in Nashville, 499 S.W.2d 874, 891 (Tenn.1973). ¹ A major purpose of the Uniform Commercial Code is to "make uniform the law among the various jurisdictions". M.C.L. § 440.1102(2)(c); M.S.A. § 19.1102(2)(c). In this day of sophisticated interstate commercial transactions, a major purpose of the Code would be undermined if identical conversion actions were subject to widely varying statutes of limitation from state to state.

We hold that when a check is converted, the payee-owner has suffered an injury to property within the meaning of M.C.L. § 600.5805(7); M.S.A. § 27A.5805(7).

We next turn to the issue raised in our brother's dissent. Initially we note that plaintiff never raised an implied warranty or implied contract theory at the trial court level. On appeal plaintiff concedes that the implied warranty of good title, M.C.L. § 440.4207; M.S.A. § 19.4207, does not run in favor of a payee. The implied warranty of good title runs from a customer or collecting bank who obtains payment or acceptance of an item or transfers an item for value to each subsequent payor bank or other payor who, in good faith, pays or accepts the item. Since here plaintiff is a payee and not a payor of the item, plaintiff has no cause of action based on this theory. Even if plaintiff's "implied contract" theory had been properly raised below and even assuming the theory has merit, we would still conclude plaintiff's action is barred by the three-year statute of limitations. Where, as here, there is no express contract or express promise and defendant's liability, if any, is implied by law, an action for injury to persons or property is controlled by the three-year statute regardless of whether the action is labeled as one in tort or implied contract. Huhtala v. Travelers Ins. Co., 401 Mich. 118, 257 N.W.2d 640 (1977); Case v. Goren, 43 Mich.App. 673, 682, 204 N.W.2d 767 (1972).

The only remaining issue is when the statute of limitations begins to run. We reject the plaintiff's argument that the cause of action accrues when the forgery or conversion is discovered. The statute begins to run when the checks are paid on a forged indorsement. M.C.L. § 440.3419(1)(c); M.S.A. § 19.3419(1) (c); Gerber, supra; Fuscellaro, supra, fn. 1. Because plaintiff commenced its action more than three years after the checks were converted, the trial court was correct in holding the action is barred by M.C.L. § 600.5805(7); M.S.A. § 27A.5805(7).

The trial court's grant of accelerated judgment in favor of defendant is affirmed.

KELLY, Judge (dissenting).

I agree with the majority that the three-year limitation upon actions to recover damages for "injury to property" does not necessarily mean a physical injury to tangible property, and a conversion of a check may be considered an "injury to property" under the statute. See Side v. Thompson, Sup., 205 N.Y.S.2d 240, 241 (1960), Bernstein v. N. V. Nederlandsche-Amerikaansche Stoomvaart-Maatschappij, 76 F.Supp. 335, 344 (D.C.N.Y., 1948), Mintzer v. Windsor Lamp Mfg. Co., 175 Misc. 551, 552, 23 N.Y.S.2d 990, 991 (1940). See also Money Corp. v. Draggoo, 274 Mich. 527, 265 N.W. 452 (1936). But see Spangenberg v. Spangenberg, 123 Cal.App. 387, 11 P.2d 408 (1932), Mason v. Buck, 99 Cal.App. 219, 278 P. 461 (1929). I do not agree, however, that the plaintiff's cause of action against defendant is necessarily limited to an action based upon conversion.

Mr. Roth intercepted the checks payable to Electric Apparatus Company and deposited them in the defendant...